3 Ways to Play the Housing Recovery
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Henceforth are a few stocks that may benefit in 2013 from ongoing improvements in housing metrics. With interest rates set to stay at rock-bottom levels into 2015, companies well positioned to grow earnings during a construction increase could see their bottom lines climb nicely. These are firms you may not have thought of at first, not directly related to residential building.
1. Whirlpool Corp. (NYSE: WHR)
Appliance makers often are beneficiaries of rising housing starts and completions, along with sales of existing homes and low mortgage rates. A strong economy, marked by falling unemployment and higher consumer spending, would be another catalyst. WHR, specifically, is experiencing sales gains in North America, while better conditions abroad, particularly in Europe are limiting overall results. Its near-term prospects are bright. In addition to residential sales, earnings are growing behind a higher-margined product mix and cost/capacity cuts.
Whirlpool manufactures laundry, refrigeration, cooking, dishwashing, mixing, and other portable items. More than 50% of revenues are derived from North America. On that note, management is taking efforts to improve its profitability in the Eurozone. Moreover, a slew of new offerings ought to leave it poised to outperform competition, the majority of whom are not focused primarily on home appliances. WHR shares are attractively valued. Their CAPS rating is 3 stars out of 5.
2. Leggett & Platt, (NYSE: LEG)
Furniture is another must when building or buying residential real estate. LEG, a specializer in components for home-based furniture, is partly dependent on housing turnover for demand. Earnings are climbing rapidly this year behind healthy unit volumes and lower raw material costs. Bedsprings, furniture components, and adjustable bed frames are selling well. The company cited solid growth in the boxspring market on a trend toward premium mattresses. Seating parts and sofa sleeper products are also receiving a warm reception.
Leggett & Platt’s other three businesses, Commercial Fixturing and Components (such as retail store fixtures), Industrial Materials serving sectors such as bedding and automotive, and Specialized Products including automotive seating systems are all on pace for profit growth in 2012, as well. Acquisitions are part of a strategy that should be facilitated by its good liquidity position. Its latest buyout, this September, was aircraft component maker Western Pneumatic Tube Holding. In all, LEG appears to be making the right moves to keep capacity utilization aloft and margins widening. The shares have steadily gained ground in the back half of this year and could well jump further as housing bounces back. Their 4% plus dividend yield is extra icing on the cake and they are rated 5 stars by the CAPS community.
3. RPM International (NYSE: RPM)
This is one that has been on my watchlist for some time. RPM attributes its recently increased guidance partially to improving U.S. residential activity and its positive impact on the consumer segment. Indeed, it expects consumer sales to rise 8% to 10% this fiscal year (ends in May). RPM’s second-quarter release, scheduled for Jan. 8, should indicate if this and other positive factors presented have in fact been instrumental in driving growth as anticipated. Specifically, a higher-priced mix is likely lifting margins, as foreign currency gains and the impact of acquisitions are probable catalysts, too.
The company’s business lines are actually geared mostly for commercial building customers. These consist of specialty paints, coatings, adhesives and sealants. Its roofing systems operation mostly caters to those requiring higher-performing roofing such as institutions. Finally, its construction chemicals are marketed primarily to commercial and industrial entities. Although the consumer unit is less predominant, growth opportunities are present. RPM shares have favorable momentum heading into its earnings report date. Their CAPS rating is 4 out of 5 and they yield around 3%.
I like these stocks, along with other housing-related holdings to provide investors with capital gains in 2013. The outlook is substantially reliant on a further rise in housing indicators.
dctotal has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!