The Hottest Housing Stock You’ve Never Heard Of
My wife is never happy with her kitchen. In fact, she could host her own renovation reality television series. We’ve moved into many homes over the course of our 27-year marriage, and with every inherited kitchen her verdict is the same: “This has got to go.”
My determined spouse is in the midst of a renovation project right now, but she’s having difficulty in finding available contractors. Local tradespeople are booked several weeks in advance with more work than they can handle — and that, dear reader, is a sure sign of a hot housing market.
As I explain below, the strength of housing is supported by plenty of hard data as well. The housing sector is a smart investment bet, especially as the spring/summer home-buying season kicks into gear. This issue, I examine the sizzling housing market and whether the good times are durable. I also pinpoint an often-ignored housing stock that’s a well-timed play on the boom.
First, let’s see what Investing Daily’s experts have to say about the great American moneymaker, your home.
There’s no place like homebuilders…
The farm girl from Kansas put it best: “There’s no place like home.” And if you’re looking for an industry with accelerating momentum, there’s no place like homebuilders.
Even if you’re an active investor in the stock market, chances are your home is your most valuable asset and your single largest purchase. That makes the housing sector crucial to the equity markets and overall economy.
Housing sector statistics have been mostly positive this year, a tailwind that boosts consumer confidence and by extension gross domestic product growth. These conditions make homebuilder stocks appealing, especially in this overvalued and risky broader market.
Linda McDonough, chief investment strategist of Profit Catalyst Alert, explains that new housing starts serve as a leading indicator for the overall economy:
“Housing starts are in a powerful upturn… The annual estimate shows the number of homes started as growing 9% from the prior year. Year-over-year growth is a critical number for stock analysis because it helps investors frame the possible growth scenario for building stocks and their suppliers…”
Jim Pearce, chief investment strategist of Personal Finance, echoes Linda’s optimism for the housing sector:
“With the unemployment rate at a ten-year low and wages growing faster than inflation, residential property values are continuing their upward surge as buyers bid up home values.”
According to the Home Buying Institute, the U.S. housing market is projected to appreciate 3% – 5% over the next year. The U.S. Census Bureau reports that national sales of newly constructed homes jumped 5.8% in March to a seasonally adjusted annual rate of 621,000, just short of July’s post-recession high. Overall, home sales jumped by a huge 15.6% on a year-over-year basis. Preliminary housing data show that April’s numbers are in keeping with these trends.
Put your portfolio in safe hands…
Jim Pearce cites another tailwind for housing:
“If Trump’s income tax overhaul never comes to pass, the stock market correction that would likely ensue could cause nervous investors to pull money out of intangible assets like stocks and bonds and into the one asset that they can see and touch every day — residential real estate.”
Investors are betting on a sustained housing recovery, but they’re piling into well-known names and giving short shrift to under-the-radar gems. Consider Miami-based Lennar (NYSE: LEN), the nation’s third-largest homebuilder by revenue. As economic recovery remains in place and housing prices continue to rise, homeowners are gaining greater confidence in their domiciles as investments — and new buyers will increasingly flock to companies like Lennar.
Lennar operates in 18 states via six divisions: Homebuilding East, Homebuilding Central, Homebuilding West, Homebuilding Southeast Florida, Homebuilding Houston, and Homebuilding Other segments.
Under the Lennar Family of Builders banner, the company includes brand names such as Lennar Homes, U.S. Home, Greystone Homes, Village Builders, Renaissance Homes, Orrin Thompson Homes, Cambridge Homes, and Seppala Homes.
Rebounding home values, falling joblessness and wage growth paint a sunny picture for the housing sector for the rest of 2017, despite storm clouds for the economy as a whole. Instrumental in generating a “wealth effect” among Americans is the steady rise in home prices since their collapse during the Great Recession.
Certain cyclical stocks that tend to do well during the spring and summer months are set to outperform; Lennar is one of the most promising.
With a market cap of $11.5 billion, Lennar also provides real estate related financial services, including mortgage financing and closing services for home buyers, which adds diversity (and hence stability) to its business model.
The average analyst estimate is for Lennar’s year-over-year earnings growth to reach a hefty 27.4% in the next quarter. Last quarter’s earnings surprised on the upside by 5.4%.
My projections show Lennar’s year-over-year earnings growth to reach at least 7.5% this year and 9.4% next year. And yet, the stock’s trailing 12-month price-to-earnings ratio (P/E) stands at 14.6, lower than major competitors Toll Brothers (NYSE: TOL) and NVR (NYSE: NVR), at 16.8 and 19.4, respectively, and the homebuilding industry at 14.8. For further context, the trailing P/Es of home renovation retailers Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) stand at 24.3 at 24.4, respectively, compared to the average of 23.9 for their peers.
As Linda elaborates, the housing resurgence should show staying power amid an otherwise tenuous economic recovery:
“Of course, the supply of new homes needs to match demand. But fear not, housing inventory is at a two-decade low. Recent numbers point to less than four months of housing inventory available for sale. Many remember the inventory glut of unsold houses after the 2008 financial crisis. Builders and lenders alike have been more careful this cycle, which is showing up in the low inventory numbers.”
The time to buy Lennar is now, before the spring weather further fuels the housing recovery and in turn lifts the homebuilder’s stock price.
Jim Fink explains his wealth-building secrets…
Jim Fink, chief investment strategist of Velocity Trader, left a high-paying corporate law gig because he realized he could make more money investing. By creating a proprietary system called the Velocity Profit Multiplier, he turned $50,000 into $5.3 million.
He explained to me how he consistently racks up big gains:
“After years of study and experimentation, I’ve discovered that every single stock sends out hidden signals before it moves, and my system tracks these signals to find profitable trade opportunities.
The good news is that I know these signals perfectly, and I can provide you with these buy signals myself. So when you’re first starting out, you don’t have to do all the work… I’ll do the work for you.
But I’m also a big believer in education, and that over time you’ll be able to follow my lead and understand more about these trade indicators.”
Editors Note: Jim Fink recently recorded a short presentation that explains his millionaire-making secrets. This presentation is must-see viewing for any serious investor. Click here to watch it now.