They’re not the sexiest of investment opportunities, and are often overlooked in rising markets. Nevertheless, housing stocks, particularly those specializing in the home improvement sector, are on cloud nine. Largely, President Trump’s economic agenda has reinvigorated multiple industries, whether they care to admit it or not. But sweet-sounding rhetoric is not the only factor involved.
First and foremost, unemployment figures are down at multi-year lows.
According to the U.S. Bureau of Labor Statistics, the jobless rate is 4.5%. You have to go back to the first-half of 2007 to see unemployment that low. Obviously, housing stocks are buoyed by a healthy labor market as people start building roots. Also, established households will spend on home improvement projects, thanks to extra cash in their wallets.
Second, housing stocks are directly and positively impacted as the extra money is making its way into real estate. In February, existing home sales tallied nearly 5.5 million units, according to data from the National Association of Realtors. In the prior year’s February, existing home sales were 5.2 million, or a 5% increase. That’s a substantial growth margin, considering our mature economy.
Finally, construction spending has reached near all-time highs. This past February, the sector hit nearly $1.2 billion. To put that into perspective, construction spending didn’t even crack $1 billion three years prior. Construction demand, especially from small businesses, is a major plus for home improvement retailers.
Here are three housing stocks that will jump on the economic momentum.
Home Improvement Stocks to Buy: Home Depot Inc (HD)
Call it boring all you want — any investor can get used to this kind of boredom!
Although HD is primarily a retailer, its specialty in home improvement mitigates negative exposure to the overall retail sector. InvestorPlace contributor Richard Saintvilus makes an excellent point that while Amazon.com, Inc. (NASDAQ:AMZN) can steal market share from traditional retailers, home improvement centers are a different species. Saintvilus notes that until “Amazon figures out it can package lumber and drywall with free two-day shipping,” Home Depot is safe.
The markets are responding in kind. Year-to-date, HD stock is up 13%. Again, these figures are terrific for supposedly boring investments. It’s over twice the gains of the even more boring SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Best of all, nothing indicates that the run is about to end. Since the Trump administration officially took the helm, Home Depot has seen only clear blue skies.
Backed by an upbeat economy, and rising housing stocks, HD is a no-brainer investment.
Home Improvement Stocks to Buy: Lowe’s Companies, Inc. (LOW)
But unlike other industries, the home improvement sector has plenty of room, even for two hulking stalwarts. This is especially true at the current juncture.
For starters, LOW stock benefits from secular demand. If something serious breaks in your home, you have to fix it — good economy or bad. Furthermore, do-it-yourselfers always benefit financially by doing the work themselves (assuming they know what they’re doing). As with Home Depot, Lowe’s stock is insulated from the e-commerce threat. Shoppers at LOW stores are typically looking for extremely specific items — not a suitable platform for Amazon.
Second, InvestorPlace’s Vince Martin points out an intriguing opportunity for LOW — the looming demise of Sears Holdings Corp (NASDAQ:SHLD). According to experts, as Sears struggles, it bleeds extra revenue into Lowe’s hands. Should Sears go under completely, Lowe’s will be anything but as it scoops up customers looking for an alternative. If anything, the markets agree with Mr. Martin — LOW stock is up an amazing 18.5% YTD.
Whether you like it for its own merits, or because of the competitive backdrop, Lowe’s is a solid buy.
Home Improvement Stocks to Buy: Scotts Miracle-Gro Co (SMG)
A few weeks earlier, Mr. Collins forecasted that the agricultural chemicals producer would rise from its flat technical base. Against his April 4 call, SMG stock is up more than 4%. That’s tremendous prescience for a forecast made only two-and-a-half weeks earlier.
His target for SMG is $110. However, indications suggest that the ultimate upside could be much higher. The fundamentals are rock solid, particularly in the profitability department. Operating and net margins exceed the results of a majority of competitors. In addition, Scotts’ valuation against its earnings is well in line with the underlying industry.
But the biggest impetus for SMG stock is renewed interest in housing stocks and the home improvement sector. Not only are real estate sales improving, older Millennials are entering their prime earning cycle. This means more families, bigger homes and higher demand for SMG products. A political catalyst exists as well should President Trump get into the meaty portion of his economic agenda.
All in all, the home improvement sector will receive a generous tailwind, and SMG can easily take advantage of this trend.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.