The stealth housing plays are all the rage -- the derivative plays -- and they are a natural place to go in the second year of a move.
What do I mean by stealth plays? Take Radian Group (RDN). Here's one I am really pounding the table about because people simply don't realize how much money a mortgage insurer can make when they get it right. It is a very simple business when lending standards are stringent, and it has very little competition except for a not-as-hot lender, the Federal Housing Administration, which is busy cutting back its exposure because of less-than-lofty standard.
You have to focus on Radian because when you see action like we are seeing now, where a company can price a gigantic 34-million-share secondary at $8 and then take off immediately, that's an amazing sign. Keep in mind that when that happens, market players are attuned to the notion that the company's newfound cash comes with the ability to pay down debt, and that is incredibly additive. Remember, Radian's book of business is largely from the post-housing bubble and is much less susceptible to default than you think.
Or how about Axiall (AXLL), which makes PVC piping used in housing construction? This company, which resulted from the merger of Georgia Gulf and PPG Industries' (PPG) commodity chlor-alkali assets, has run tremendously, so much that when Credit Suisse rolled out coverage of the stock it had to do so as a Neutral because it is already up 35% year to date. Of course, it isn't just the housing angle here, as Axiall's products are just derivatives of natural gas and our country's become one of the lowest-cost producers of that feedstock. Still, I think the stock can run further.
How about Jarden (JAH)? The maker of home goods hit a 52-week high as it announced an accelerated buyback. It's been an immense winner, up 21% year to date, but it's viewed as a pent-up demand play.
Finally, there's Martin Marietta Materials (MLM), recommended by Goldman Sachs today. It makes aggregates, crushed stone. That's what you need when you build new roads and housing complexes. Because it is only up 3%, people could find their way into it as a catch-up to the rest of the group.
We know the obvious ones, homebuilders, can trade back up, and there are the kitchen, bath, lumber, appliance and flooring plays. But keep the stealths in mind, especially Radian. I believe they all have further to go and are ideal for when we have the next Italian-inspired bear raid or some other superfluous decline -- at least when it comes to housing.