How Picked Over is Housing Sector? One Stock Left
While the U.S. stock market is showing signs it is headed for a mid-stream correction, the housing sector is showing no signs of let up. Annualized housing starts in March surpassed one million, the first time starts breached seven figures since the financial crisis.
Moody’s Analytics says there’s plenty more growth to come. It expects annual home construction to reach 1.8 million in the coming years. Chief economist Mark Zandi says 1.8 million new homes may not even be enough to absorb pent-up demand. He recently wrote that 2 million homes per year may be needed to meet demand if the depressed level of household formation -- a function of the rough job market since the recession -- picks up.
Being in the early stages of a housing recovery does not, alas, mean we are in the early stages of a housing stock recovery. That boat sailed a long time ago, as seen in the surge of the SPDRs S&P Homebuilders ETF (XHB) over the past year.
The SPDR S&P Homebuilders ETF is an equally weighted portfolio of about three dozen stocks. The current PE for the portfolio is more than 19, compared to 14 for the overall S&P 500 index. In addition to owning home builders including Toll Brothers (TOL) and Lennar (LEN) the ETF also invests in retailers such as ‘Ethan Allen Interiors (ETH), appliance manufacturer Whirlpool (WHR), and the big box home improvement retailers Home Depot (HD) and Lowe’s (LOWE).
Using YChart Stock Screener to drill down into the three sub sectors related to housing (residential construction, home improvement stores and home furnishings/fixtures) turned up 48 stocks. Of the 40 rated by YCharts proprietary valuation analysis, nearly half are tagged as Avoid. That says plenty about the investment opportunity at this juncture.
The only Attractive stock in the bunch is Lifetime Brands (LCUT). Never heard of it? Well with a market cap below $200 million that’s not surprising. But you know its product line, which includes Cuisinart, KitchenAid, Mikasa and Farberware. Despite a recent sharp rally, the stock’s trailing and forward PE ratio are below 10.
Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at firstname.lastname@example.org.