Last year, housing stocks were out of favor. This year, they’re red-hot again – and they have the Federal Reserve to thank for it.
The Fed’s decision not to raise the federal funds rate this year has acted as a lifeboat for housing stocks, many of which took it on the chin in 2018 as the Fed raised short-term interest rates four times, from 1.5% to 2.5%. Take a look at this two-year chart of the iShares U.S. Home Construction ETF (ITB), whose holdings include Home Depot (HD), Lowe’s (LOW), Lennar Corp (LEN) and D.R. Horton (DHI).
You can see housing stocks were faring well until the calendar flipped to 2018, when the Fed put its foot on the interest-rate gas. However, since bottoming in late December (along with the rest of the market), the ITB is up 32%, outpacing the 18% gain in the S&P 500 during that time. And several housing stocks have performed even better than that.
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Cabot Dividend Investor solves the biggest problem investors face—generating enough income to meet your retirement income needs in this low-interest environment (with tons of market risk) without selling your investments to make ends meet.
Once you fully understand the financial power our new IRIS-based advisory brings you, you’ll also understand why we limit the new membership to this advisory.Click here to accept your trial now.
Just look at the returns in these five housing stocks since the Christmas Eve market bottom:
5 Red-Hot Housing Stocks
D.R. Horton: +33%
Lennar Corp.: +36.2%
TopBuild Corp. (BLD): +67%
Zillow Group (ZG): +17.4%
Obviously, TopBuild Corp. stands out on this list, basically doubling the returns of the other four. It’s the leading installer and distributor of insulation and building material products to the U.S. construction industry, but probably isn’t a familiar name to most since it’s a small-cap stock, with a mere $2.44 billion market cap. But it’s growing fast, at least on the top line: the company grew sales by 25% last year, and analysts anticipate 9% earnings growth this year, which would be a nice bounce-back after a 12% EPS decline in 2018.
Here’s what BLD’s chart looks like:
Not bad! A lot of housing stock charts look pretty good right now, and many of them are still trading well below their September 2018 highs. With the Fed slamming the brakes on interest rates for the rest of the year, and with stocks continuing their relentless rebound from the fourth-quarter market correction, it’s a good bet they’ll continue to climb in the coming months.
An alternative way to play the rebound in the housing sector is through Real Estate Investment Trusts (REITs). Tom Hutchinson, chief analyst of our Cabot Dividend Investor advisory, is particularly bullish on REITs. He currently recommends two REITs in his portfolio of 16 dividend-paying stocks, and they have each returned more than 30% to subscribers in less than a year.
Or, if you’d prefer to research stocks on your own, the housing sector is a good place to start right now. And BLD looks like the cream of the crop. As long as the Fed continues to stand pat on interest rates, housing stocks should benefit.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!