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Look Beyond Lowe’s and Home Depot for Value
You wouldn’t know it to read the headlines, but the bottom of the housing crisis appears imminent, and that means opportunity
for savvy investors.Let’s look at the indicators. On Monday, Lowe’s () reported results that beat
expectations. Although profits slid by 22%, the company earned 32 cents per share, besting analyst expectations of 25 cents per
share. Shares of LOW went higher on the news.Home Depot () followed on Tuesday with earnings that also beat expectations.
But unlike LOW, shares of HD fell on the news. It seems investors were reacting to worse-than-expected housing start numbers released
the same day.But on closer inspection, the housing start numbers actually showed signs of improvement. Only the multifamily segment was down.
Single family housing starts actually improved slightly.To me, this is a sign the housing sector is starting to turnaround. Now, many investors are expecting long beaten-down stocks
like LOW and HD to rally in advance of the improvement in this sector.It’s not a bad strategy. But I prefer to turn my attention away from the big box retailers. There are other companies that stand
to profit from a housing sector turnaround.Here are five of my favorite stocks…
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Stock #1: U.S. Home Systems ()
Many stocks that are tied to the homebuilding sector are so cheap they’re now considered penny stocks. Case in point is U.S.
Home Systems (), one of my top
penny stocks to buy now.USHS makes products for home improvement projects including kitchen refurbishing and cabinetry.
Its products are sold through Home Depot, so it’s no surprise that it has struggled during the housing crisis.But with most of the damage behind it, I expect USHS to ride Home Depot to recovery. And that recovery should be very rewarding
to investors as the stock trades for less than $3 per share.The beauty of owning a cheap
stock like this is that small improvements in sales and revenue can have a big impact on stock price. It is a high-risk, high-reward
proposition, but if you think housing is long overdue for a surge, USHS may be perfect for you.
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Stock #2: Valspar ()
The quickest way to improve the prospects of selling or valuing an existing home is a fresh coat of paint. Tight consumer budgets
may have put such projects on hold, but sooner or later, you have to buy the paint. One of the reasons LOW and HD will do well
in the near term will be due to an increase in paint buying for maintenance that was delayed due to this recession.Valspar (), who has been selling paint since 1806, has seen its share of ups
and downs during that long history. This current recession has been but a small blip compared to other companies with products
directly tied to housing.You won’t get rich owning VAL, but you won’t lose much, either. I guess owning the stock would be like
watching paint dry. And in this environment, that’s not so bad.
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Stock #3: Plum Creek Timber ()
Demand for lumber is way down from prior levels as a result of the housing crisis, and so are lumber company stocks. Plum
Creek Timber (), a real estate investment trust that owns timber acreage, has
seen its stock value cut in half due to the negativity surrounding anything labeled “REIT.”But that’s a mistake, as this REIT will do really well when demand for lumber improves. With a dividend yield of more than 5%,
investors in the stock will literally get paid to wait for the home sector to rebound.I expect PCL to double in value when the
rebound happens.
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Stock #4: Temple-Inland ()
Temple-Inland’s () touches the single family home construction market in a
number of ways. As such, its fortunes rise and fall with the number of homes being built.The disastrous collapse in new construction
did not destroy TIN, but it came close. Shares of TIN fell to $2.34 per share at the market bottom in March. But they have come
roaring back on hopes of a recovery in housing and now trade above $12.Amazingly, that is well below the 52-week high of $20.49. The really big returns have been made in TIN, but there are still
nice gains to be had here. I see the stock doubling in value or more over the next year or two.Housing starts have nowhere to
go but up, and when they do, TIN will do the same.
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Stock #5: Black & Decker ()
I’m not the handiest guy around, but home improvement projects are a necessary evil these days — the amount of money you
can save by doing them yourself is worth the effort. But you need to have the right tools. And for me, that means buying tools
that I know are of high quality. The leader in this regard is Black & Decker ().But consumers haven’t been buying much of anything during this recession, and BDK has suffered losing more than half its value
in the last year. Fortunately for BDK, more rookies like me will be shopping for tools in the very near future. I really have
no choice but to do it myself — I can’t afford not to! Such a fact should support future sales growth for many years beyond
the recovery in the housing sector.So forget about the retailer and buy the company that makes the things being bought. I see BDK doubling in value from here in
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