It's not too late to invest in the rebirth of the housing industry, but it's tricky.
Growth investors, who are willing to pay up in hope of ballooning profits, have lots of choices among both homebuilders and household goods stocks. For value investors like me, who attempt to buy undervalued stocks, it's tougher. People have caught on to the idea that the long-moribund housing market is surging again, and the stocks are priced accordingly.
New-home sales peaked at a seasonally adjusted annual rate of almost 1.4 million homes in July 2005. In the housing bust, sales dropped to a rate of 273,000 homes in February 2011. The January 2013 pace was 437,000, and many economists believe the February number will come in much higher. Sales of existing homes show a similar pattern, though the numbers are considerably larger.
These numbers are out there for all to see. So the housing stocks are a crowded bandwagon right now. Yet I believe it's not too late, because I believe we are in the early innings of a housing renaissance. Also, some indirect plays are available. Here are five housing-related stocks of interest.
Perhaps the least expensive homebuilder now is Meritage Homes (MTH). Based in Scottsdale, Ariz., Meritage builds mainly in the South and West. It lost money in four of the past six years, including huge losses in 2007 and 2008. But it is profitable now, and analysts expect it to remain so. The stock goes for about 15x earnings.
Another homebuilder that I own personally and for almost all of my clients is NVR (NVR), based in Reston, Va. I chose it because it has a decent balance sheet, whereas the balance sheets of many other homebuilders have been shredded by five years of bad times. NVR's debt is only 40% of stockholders' equity.
An indirect housing play is Select Comfort (SCSS) of Plymouth, Minn., which makes mattresses that are adjustable for firmness. It is a play on an increase in household formation, and it is debt-free.
Another indirect play, which I own personally and for clients, is Flexsteel Industries (FLXS). Based in Dubuque, Iowa, it makes furniture for homes and offices. The name comes from the company's use, about 90 years ago, of steel springs inside its furniture. The stock sells for about 12 x earnings.
I also like Carlisle Companies (CSL) of Charlotte, N.C.. It is a conglomerate, but one of its main products is roofing. The shares go for 16x earnings.