Housing-Sector Stocks Still Have Room for Growth

Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the housing market indicator falling in April (the most recent release), now could be the time to get in on housing sector stocks. The overall picture is positive, to the point where home prices are near their pre-recession levels. All signs point to a "buy" in this sector and now could be your last chance to get in before share prices in the industry soar even higher.

Home prices are one thing, but perhaps even more substantial are the increasing trend of overall housing starts, sales and permits, which have risen well above recession lows. After several years of decreased activity, many bullish years are likely to come.

The recovery isn't only positive for the housing sector, but for the stock market as a whole. After all, it was the housing sector that led to the crash, so it could be the golden ticket to keeping the bull market active. But with so many industries impacted by housing, it's difficult to know which stock to choose. These stocks have already undergone a surge in buying activity, but I think there is still room to grow.

Housing plays

While shares of Fortune Brands Home Security (NYSE: FBHS) have increased by about 77% in the last year, this company has a lot of momentum and is set to climb even further with the improving housing sector, despite April's blip. The company assembles and manufactures various building products, such as cabinets, faucets, windows, doors, storage and security. As building starts are likely to increase further, this company will be called upon to provide materials. Fortune's revenue has grown from about $3 billion in 2009 to nearly $3.6 billion last year. 

The company has recently initiated a dividend, which could indicate the firm is in a solid cash position, and confidence is high. This is also a sign that Fortune is likely here to stay, after joining the stock market in October 2011.

Water infrastructure is an area that many investors don't think of when considering stocks affected by the housing market. Mueller Water Products (NYSE: MWA) markets and manufactures water infrastructure, piping components and flow control in water treatment facilities and water distribution networks.

Housing starts are a main contributor to Mueller's success. Currently, 5% of the company's total sales are related to house sales, but that number was nearly 30% in 2006.The company's revenue reached over $1 billion last year, while in 2010 that number was $960 million. This stock is a riskier play due to the fact that it is operating at a loss, though that has put the stock's price attractively under $8, which is about half of its pre-recession level, and I expect big upcoming results for this company. 

Confidence of persistent success was expressed recently by one of Mueller's directors, Joseph Leonard, who purchased 29,000 additional shares on May 6, and now has 69,298 shares. Also, on May 3, director Jerry Kolb bought 7,400 shares, and now has 57,850. A third director, Bernard Rethore, bought 10,000 shares on May 3, and now has 66,602 shares.

Sherwin-Williams (NYSE: SHW) accumulates approximately 75% of its earnings from commercial and residential renovation construction. The company is another housing-sector stock of which the price has taken off recently, but like nearly all stocks in the industry, an investor's buy would be a momentum play.

The stock price has increased from nearly $75 per share midway through 2011 to around $183 today. Since 2010, revenue has advanced by nearly 35%. Sherwin is also expected to profit from many homeowners who had put off property maintenance because they weren't able to afford it. But that's gradually changing.

With more homeowners counting their disposable income as they look at rotting decks or outdated cabinets, they may choose to spend that extra money on renovations, and that is where Sherwin will profit. The company is so confident of that fact that it increased its dividend by 7% recently. 

Time to celebrate

With two leading American banks saying home prices will climb in 2013, it may be time to chill the champagne. Bank of America anticipated in a report entitled "Someone Say House Party?" that home values will increase by 8% this year. And JPMorgan Chase estimates a 7% increase this year and twice that pace in 2015.

That means that while last year's likely bottom would have been the ideal time to buy a stock weighted in the housing sector, right now might not be too late, especially due to the recent dip from April's blip. The pent-up demand for housing is getting ready to explode, so bring out the champagne glasses.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. 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!

blog comments powered by Disqus