Earlier this year, conflicting opinions had been emerging about the health of the housing sector. These views had been fueled by a series of reports which were uneven in nature. However, recent reports on new home sales and housing starts reveal that the housing recovery is well and truly on track.
New Home Sales Rise
New home sales moved up 6.8% to 517,000 in April, following an 11.4% decline in March. Additionally, sales in March were revised upward from 481,000 to 484,000. Significantly, sales in April also posted a 26% increase over the 410,000 pace recorded in the same period last year.
This pace was also higher than forecasts of an increase to 508,000-510,000. Economists took the view that housing will make up for the slow recovery in manufacturing and help to boost economic growth in 2015. A job market revival is also inducing young adults to purchase their own homes.
Housing Starts Surge
Meanwhile, housing starts data released earlier this month was also bullish in nature. Housing starts surged 20.2% to 1,135,000 in April from March’s revised tally of 944,000. Construction on new homes climbed at the fastest pace in April since late 2007, banking on rise in single-family housing starts.
Single-family housing starts gained 14.9% in April to 733,000 from March’s revised figure of 628,000. The pace of permits for single-family homes also hit the fastest rate since early 2008. Separately, building permits increased at a rate of 10.1% in April to 1,143,000, exceeding the consensus estimate. When taken together, these reports indicate that the sector’s recovery is picking up pace.
Wider Economic Recovery
Other economic reports released this week have also been positive in nature, indicating a wider recovery is in progress. Consumer Confidence increased to 95.4 in May from 94.3 in April. Core capital-goods orders, which don’t include unpredictable defense and transportation sectors, gained 1% in April following a revised 1.5% increase in March.
This lends credence to the argument of several Fed officials, including Fed chair Janet Yellen that a wider recovery is in progress. Yellen has indicated on several occasions that the weakness seen in the earlier half of the year is largely attributable to a harsh winter. Several market watchers now believe that the economy will pick up pace over the rest of the year which further increase the pace of the housing recovery.
Our Choices
Below we present three stocks which will benefit from the housing recovery. Additionally, with our new style score system we have identified the key statistics to pay close attention to and thus which stocks might be the best for value investors in the near term.
Our research shows that stocks with Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 offer the best upside potential.
Select Comfort Corp. SCSS is engaged in the manufacture, specialty retailing and direct marketing of premium quality, innovative adjustable-firmness beds and other sleep-related products.
Select Comfort holds a Zacks Rank #2 (Buy) and has a Value Style Score of ‘A.’ The company has expected earnings growth of 7.6% for the current year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 21.97.
Kirkland's Inc. KIRK is a leading specialty retailer of home décor products in the United States. The company sells framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products.
Apart from a Zacks Rank #2 (Buy), Kirkland's has a Value Style Score of ‘A.’ The company has expected earnings growth of 21.2% for the current year. It has a P/E (F1) of 22.97x.
Watsco Inc. WSO is the largest distributor of Heating, ventilation and air conditioning equipment as well as related parts in the US. It distributes residential and commercial air conditioners as well as related parts.
Watsco holds a Zacks Rank #2 (Buy) and has a Value Style Score of ‘B.’ The company has expected earnings growth of 18.8% for the current year. It has a P/E (F1) of 24.48x.
Positive housing reports indicate that the sector is now recovering at a relatively faster pace. Additionally, there are several indications that the economic recovery is quickening. This is why these stocks would make prudent additions to your portfolio.
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