Housing Rebound Stocks, From Builders to Boilermakers

by Dan Burrows | November 21, 2012 7:30 am

The data supporting a definitive upturn in the housing market just keeps rolling in.

True, we’re talking about improvement against some epically bad numbers, and it’s not as if the news is a secret to the market. But we’re still in the early stages of a comeback, meaning plays on homebuilder stocks, exchange-traded funds and investments in allied businesses still could have room to run.

The latest bit of positive news came Tuesday when we learned that new housing starts rose a better-than-expected 3.6% last month[1] to hit a four-year high. Construction permits for new single-family homes likewise hit their highest level since 2008 — or two long years after the housing bubble started to burst.

But wait — there’s more. The National Association of Home Builders’ Housing Market Index, which is highly correlated with single-family housing starts, is back to levels not seen since May 2006. At the same time, the median price for single-family homes rose 10.9% year-over-year last month, the fastest pace seen since January 2006.

And, perhaps best of all, house prices have risen on a national basis for five consecutive months. Yes, they’re still down about 30% from their 2006 peak, but the trend is now firmly headed back up.

Naturally, that has homebuilder stocks and ETFs on a tear, but that doesn’t mean you’ve missed all the upside if prices, starts and sales keep ramping up.

For a do-it-yourself portfolio of homebuilders, here are the top residential construction stocks by market capitalization with their price performance over the last 52 weeks:

For a cheap and diversified portfolio of the above stocks and more, look no farther than the Dow Jones U.S. Home Construction ETF (NYSE:ITB[11]), which also includes home-improvement retailers Home Depot (NYSE:HD[12]) and Lowe’s (NYSE:LOW[13]) among its top holdings. ITB is up 93% in the past 52 weeks.

For a different take on diversification in the housing industry, there’s the S&P Homebuilders SPDR ETF (NYSE:XHB[14]), which has gained 63% in the last year. XHB captures homebuilders such as Ryland and PulteGroup, but mostly it focuses on related industries. Top holdings include appliance-maker Whirlpool (NYSE:WHR[15]); USG (NYSE:USG[16]), which makes construction materials; Lennox (NYSE:LII[17]), which makes heating and cooling systems; boilermaker AO Smith (NYSE:AOS[18]); and Mohawk Industries (NYSE:MHK[19]), a producer of carpets and flooring.

Finally, a little farther afield but still poised to benefit from a better housing market are home goods and furnishings retailers, such as Williams-Sonoma (NYSE:WSM[20]), which also owns Pottery Barn; Bed, Bath & Beyond (NASDAQ:BBBY[21]); and Pier 1 Imports (NYSE:PIR[22]).

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

  1. new housing starts rose a better-than-expected 3.6% last month: http://online.wsj.com/article/SB10001424127887324352004578130812555299932.html?mod=googlenews_wsj
  2. LEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=LEN
  3. TOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=TOL
  4. NVR: http://studio-5.financialcontent.com/investplace/quote?Symbol=NVR
  5. PHM: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHM
  6. DHI: http://studio-5.financialcontent.com/investplace/quote?Symbol=DHI
  7. MDC: http://studio-5.financialcontent.com/investplace/quote?Symbol=MDC
  8. RYL: http://studio-5.financialcontent.com/investplace/quote?Symbol=RYL
  9. KBH: http://studio-5.financialcontent.com/investplace/quote?Symbol=KBH
  10. SPF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPF
  11. ITB: http://studio-5.financialcontent.com/investplace/quote?Symbol=ITB
  12. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  13. LOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=LOW
  14. XHB: http://studio-5.financialcontent.com/investplace/quote?Symbol=XHB
  15. WHR: http://studio-5.financialcontent.com/investplace/quote?Symbol=WHR
  16. USG: http://studio-5.financialcontent.com/investplace/quote?Symbol=USG
  17. LII: http://studio-5.financialcontent.com/investplace/quote?Symbol=LII
  18. AOS: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOS
  19. MHK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MHK
  20. WSM: http://studio-5.financialcontent.com/investplace/quote?Symbol=WSM
  21. BBBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBBY
  22. PIR: http://studio-5.financialcontent.com/investplace/quote?Symbol=PIR

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