${Html.ActionLink("My MarketWatch", "index", new { controller = "composite", area = "section", page = "my" })} | !{Html.ActionLink("Sign out", "LogOff", new { area = "User", controller = "Account" }, new { id = "signOutLink" })}
Welcome, ${UserDisplayName}
Log in
Become a MarketWatch member today
Robert Powell's Your Portfolio Archives | Email alerts
March 14, 2012, 12:01 a.m. EDT
Want to see how this story relates to your portfolio?
Just add items to create a portfolio now:
Create Portfolio or Cancel Already have a portfolio? Log In
By Robert Powell, MarketWatch
BOSTON (MarketWatch) "” The housing market the U.S. is showing some signs of recovery and if the trend continues, investors will be looking for opportunities.
"The housing market is showing some evidence of stabilization and even improvement in the U.S.," said Dan Kelley, the portfolio manager of the Fidelity Trend fund /quotes/zigman/226565 FTRNX +1.90% . "And with a reduction in inventory and an appreciation of rental rates across many markets, investors are taking another look and recognizing the value proposition the sector can provide."
Unfortunately, finding those investment opportunities might not be so easy at the moment.
According to Jason Pride, director of investment strategy at Glenmede, many of the investments that will benefit from a recovery in the housing market will be found in private markets, not in the easier-to-access public markets.
In an interview, Pride said public market real estate investment trusts, or REITs, which tend to focus on commercial real estate, are not the place to invest right now. Nor are REITs that specialize in residential rental properties. Most of those, he said, are now trading at premium valuations "as investors have flocked to the space in their hunt for yield." And the same goes for homebuilders, such as Hovnanian Enterprises Inc. /quotes/zigman/229621/quotes/nls/hov HOV +1.75% , many of which have surged in value from the lows of last year.
Instead, the "one avenue that continues to make the most sense in the public markets has been the home-improvement retailers where valuations are reasonable and sales tend to go hand-in-hand with home sales," Pride wrote in his monthly report.
Home Depot Inc. /quotes/zigman/229488/quotes/nls/hd HD +1.13% (HD) is one of the retailers which is poised to benefit from improvement in the housing market.
"We still have a fundamentally positive view of the home-improvement retail market and believe it is still fairly early in the cyclical recovery," Peter Wahlstrom, an analyst at Morningstar, wrote in a recent report. "We plan to increase our fair value estimate to reflect the time value of money, [Home Depot's] overall outperformance in 2011, and management's encouraging 2012 outlook, which calls for low-single-digit comp growth and 50 basis points of margin expansion." Morningstar's fair value estimate for Home Depot, which trading at a 52-week high, is currently $49 a share.
Lowe's Cos. Inc. /quotes/zigman/232508/quotes/nls/low LOW +1.31% , which is trading at a four-year high, is the other big home improvement retailer to consider. Nomura Securities, for instance, this week upgraded its rating of Lowe's to a "buy" from a "hold". According to published reports, Aram Rubinson, an analyst for Nomura, said shares of Lowe's "have moved higher, but ample upside potential remains if our forecasts are correct"¦ But by following HD's playbook we think it can find successes. Those in turn, can breed even more success. Risk remains, but momentum is more likely to turn positive than negative."
To be fair, there are some are some who are bullish on home builders. For instance, Tom Villalta, president and chief investment officer of Jones Villalta Asset Management, reports holding two home-builder-related stocks in the Jones Villalta Opportunity Fund /quotes/zigman/536536 JVOFX +3.12% at the current time: Home Depot and Toll Brothers Inc. /quotes/zigman/243733/quotes/nls/tol TOL +2.75% .
"Toll Brothers has been agile and deliberate in their efforts to pick up distressed properties," said Villalta. "Their Gibraltar Capital and Asset Management subsidiary was established to purchase wholly or with partners distressed properties. I think they are really establishing themselves to benefit disproportionately from a rebound in housing."
Still, Villalta said, "Home Depot is, in my view, a safer route to participate in a housing recovery, or limit one's downside if the recovery takes longer. There is a link, but the company does not live and die by home sales, so, in our view, there is less risk."
Villalta also said bank stocks such as Bank of America Corp. /quotes/zigman/190927/quotes/nls/bac BAC +6.26% and Wells Fargo & Co. /quotes/zigman/239557/quotes/nls/wfc WFC +5.78% are also avenues to get housing exposure. "Given both companies mortgage operations, servicing portfolios and loan portfolios, they have direct links to the housing market," he said. "Indeed, I would argue that the banking industry's problems are mostly related to the deflationary environment (driven by housing), and depreciation of underlying collateral (again, mostly housing). Both Bank of America and Wells Fargo suffered as a result of a falling housing market, and both will prosper with a resurgent housing market."
The looming U.S. labor shortage
10 reasons Wall Street will hit bottom, crash
Canada's housing market flirts with bubble
China stocks slump, hurt by Premier Wen's remarks
This market is headed higher
The looming U.S. labor shortage
Investment opportunities as housing improves
Romney can't connect with the middle class
CNN: "?Quality journalism is good business'
What Romney, Obama Tax Plans Might Mean for You
Free Homes, Made to Order for Wounded Vets
IRAs and Taxes: Is It Time for a Roth?
IRAs: How to Reduce Your Tax Hit
Banks boost Europe stocks after U.S. stress tests
European stock markets rise Wednesday, with banking in the lead after a favorable bank stress test from the...
Santorum scores victories in South
Walton loves to get emotional about stock
Basketball great Bill Walton wanders the halls at investment conference looking for the next great stock he...
Australia aims to rebrand wine image in U.S.
Canada's housing market flirts with bubble
March Madness brings business back home
IPad may be incremental to wireless carriers
Oil demand dented by high prices: IEA
Pairs hedging trade: Citigroup, J.P. Morgan
U.K. Feb. jobless claims rise more than forecast
Britain weighs issuing 100-year bond: reports
Banks boost Europe stocks after U.S. stress tests
Read Full Article »