Riding Housing's Coattails

 | Jul 11, 2012 | 10:30 AM EDT
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Lumber Liquidators (LL) has been a prominent housing-related price-gainer in recent months, having gained nearly 86% year to date. The shares closed Tuesday at $32.80, just 0.1% above the five-day exponential moving average, and 8.9% above the 50-day line.

The last time Lumber Liquidators tagged its 50-day line was on June 4. It's been trending along that key price line since early March.

This is a clear fundamental and technical leader, though it's been pulling back recently from its July 2 all-time high of $34.56. Its earnings have grown at double-digit rates in the past three quarters, a turnaround after earnings declines in the three quarters prior to that. Revenue has also been increasing at double-digit rates in the past three quarters.

The Virginia-based company, which operates discount flooring stores in 46 states and Canada, is set to report earnings sometime around June 25. Analysts are expecting income of $0.29 per share on revenue of $196.52 million. Those would represent year-over-year increases.

This stock could present a buy opportunity in this current pullback, but be alert to weakening in the fledgling market uptrend, which got under way June 29. If market conditions deteriorate further, it would not be surprising to see even strong performers fall into new consolidations.

Another housing-related name that's showing strength is Beacon Roofing (BECN). The stock advanced 2.1% Monday and 2% Tuesday, both days in heavier volume vs. the prior session.

On July 2, the company said it would acquire Structural Materials, a California-based distributor of roofing materials.

Beacon qualifies as having had a fairly recent initial public offering, having made its Nasdaq debut in September 2004. As I frequently mention here, companies that went public within the past dozen or so years are often among the market's best performers, with price growth spurred by earnings increases.

The company is expected to report its third quarter sometime around Aug. 8. Wall Street has pegged earnings at $0.57 per share on sales of $587.61 million. Beacon topped estimates in each of the past four quarters.

The yearly estimates look good for Beacon, too. Analysts are eyeing income of $1.63 per share this year, up 41% from 2010. Next year, though, that growth rate is expected to slow to 9%.

On its chart, the stock began forming a sloppy, erratic consolidation in May. It began etching the right side of that consolidation June 28, the day before the general market went into an uptrend. On July 2, the stock's five-day exponential moving average crossed above the 15-day. With the stock holding above the five-day, it would have been buyable at that point.

Unlike many stocks that have skidded below buy points as the nascent rally weakened, Beacon just kept climbing higher -- appropriate enough for a roofing stock.

Beacon closed Tuesday at $27.20, 2.9% above its five-day line. The general market selloff Tuesday afternoon pulled Beacon along with it.

In this kind of whipsaw market, that is too extended. As with Lumber Liquidators, a pullback to the 15-day line could offer a technical entry point -- but, here as well, market conditions would factor into any buy decisions.

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