Here’s an overlooked way to play the ‘stuck-at-home’ trend in the stock market

As Americans have been forced to stay at home for work, school and even visits to the doctor, shares of cloud-services providers have soared. But there’s something else going on that points to a long-term trend investors need to know about: a housing shortage outside cities, and a boom in home renovation and improvement.

It’s understandable that at a time when people have to stay home that cloud-services providers such as Zoom Video Communications Inc. US:ZM will soar. The stock is up 20% this month and 349% for 2020. The familiar FAANG stocks (plus Microsoft Corp. US:MSFT ) have also surged this year:

Company Ticker Total return – 2020
Facebook Inc. Class A US:FB 43%
Apple Inc. US:AAPL 71%
Amazon.com Inc. US:AMZN 84%
Netflix Inc. US:NFLX 62%
Alphabet Inc. Class C US:GOOG 23%
Alphabet Inc. Class A US:GOOGL 22%
Microsoft Corp. US:MSFT 46%
 Source: FactSet

But variety is the spice of life — and an excellent tool to cut risk in your investment portfolio and avoid missing out on opportunities.



As people are stuck inside, they are also improving their homes. Others are trying to move away from cities, leading to incredibly strong markets for home sellers in suburbs and rural areas. That points to a housing shortage and good times for home builders, suppliers to those builders and home-improvement retailers, including Home Depot Inc. US:HD and Lowe’s Cos. US:LOW.

Digging further, consider a company such as Pool Corp. US:POOL, which bills itself as “the world’s largest wholesale distributor of swimming pool supplies, equipment and related leisure products” and has well over 100,000 wholesale customers. This stock is up 57% this year.

It’s easy to screen the broad indexes for home-builder stocks, but it is difficult to identify companies similar to Pool Corp. US:POOL, because a company’s industry listing may be something vague like “wholesale distributors” within the consumer discretionary sector.

Of course, an excellent way to play the home construction/renovation trend is through exchange traded funds that focus on appropriate industries. So we looked to three U.S. construction and home improvement-related ETFs, combined their holdings and removed their duplicates for a list of stocks.

Here are the three ETFs:

• The iShares U.S. Home Construction ETF US:ITB holds shares of home builders and companies that supply them, including the large home-improvement chains. The portfolio is weighted by market capitalization.

• The SPDR S&P Homebuilders ETF US:XHB holds an equal-weighted group of companies involved with home building and supplying builders.

• The Invesco Dynamic Building & Construction ETF US:PKB holds 30 U.S. construction companies, and isn’t focused only on home construction.

Here’s how the three ETFs have performed this year:

FactSet

Taking the three ETFs together and eliminating duplicate holdings, we are left with a group of 69 stocks, 42 of which have had double-digit returns this year.

So here’s the entire list, sorted by how well the stocks have performed this year. This is a lot of data — scroll the table to see all the information, which includes forward price-to-earnings ratios, percentage of “buy” ratings among sell-side analysts and 12-month price targets:

Company Ticker Total return – 2020 Forward P/E Share ‘buy’ ratings Closing price – Aug. 28 Consensus price target Implied 12-month upside potential
Lumber Liquidators Holdings Inc. US:LL 161.0% 28.9 20% $25.50 $22.00 -14%
Trex Co. Inc. US:TREX 66.2% 51.2 25% $149.39 $137.09 -8%
Meritage Homes Corp. US:MTH 61.8% 10.4 63% $98.90 $106.00 7%
LGI Homes Inc. US:LGIH 60.8% 11.4 20% $113.58 $119.50 5%
Tractor Supply Co. US:TSCO 58.7% 24.5 40% $146.91 $154.60 5%
Pool Corp. US:POOL 56.9% 41.8 50% $330.90 $321.67 -3%
TopBuild Corp. US:BLD 52.1% 22.0 90% $156.76 $163.30 4%
Floor & Decor Holdings Inc. Class A US:FND 44.2% 50.2 57% $73.26 $75.16 3%
Watsco Inc. US:WSO 40.9% 38.0 11% $246.35 $200.60 -19%
Lowe’s Cos. Inc. US:LOW 40.2% 20.2 80% $165.51 $182.33 10%
SiteOne Landscape Supply Inc. US:SITE 39.4% 55.7 22% $126.34 $119.00 -6%
D.R. Horton Inc. US:DHI 37.4% 11.1 63% $71.84 $75.06 4%
Century Communities Inc. US:CCS 37.4% 8.6 33% $37.57 $43.17 15%
Lennar Corp. Class A US:LEN 37.0% 12.3 50% $75.93 $75.44 -1%
Lennar Corp. Class B US:LEN 35.3% 9.8 47% $59.92 $75.34 26%
Home Depot Inc. US:HD 32.8% 24.4 63% $286.29 $306.19 7%
Fortune Brands Home & Security Inc. US:FBHS 32.1% 21.0 29% $85.41 $82.77 -3%
Masonite International Corp. US:DOOR 28.5% 15.6 57% $92.78 $103.83 12%
Gibraltar Industries Inc. US:ROCK 28.4% 21.2 100% $64.78 $68.50 6%
Installed Building Products Inc. US:IBP 28.3% 19.0 67% $88.33 $101.27 15%
UFP Industries Inc. US:UFPI 28.2% 18.0 40% $60.82 $58.80 -3%
Quanta Services Inc. US:PWR 26.6% 13.3 100% $51.39 $54.38 6%
Simpson Manufacturing Co. Inc. US:SSD 26.2% 28.6 0% $100.62 $93.75 -7%
PGT Innovations Inc. US:PGTI 25.6% 17.0 40% $18.72 $20.88 12%
Builders FirstSource Inc. US:BLDR 24.6% 14.6 90% $31.67 $34.40 9%
Whirlpool Corp. US:WHR 24.6% 11.7 33% $178.88 $163.57 -9%
Williams-Sonoma Inc. US:WSM 24.5% 14.4 23% $89.56 $98.47 10%
Masco Corp. US:MAS 23.1% 20.5 74% $58.54 $64.43 10%
M.D.C. Holdings Inc. US:MDC 19.4% 8.4 25% $44.34 $51.00 15%
Trane Technologies plc US:TT 18.0% 28.2 43% $120.30 $116.00 -4%
PulteGroup Inc. US:PHM 17.7% 9.9 40% $45.32 $47.46 5%
Lennox International Inc. US:LII 17.6% 29.8 12% $284.69 $233.15 -18%
Aaon Inc. US:AAON 16.8% 46.1 0% $57.49 $44.00 -23%
Sherwin-Williams Co. US:SHW 16.6% 28.2 52% $675.91 $680.14 1%
Forterra Inc. US:FRTA 16.6% 13.7 40% $13.48 $16.00 19%
Helen of Troy Ltd. US:HELE 16.2% 21.5 100% $208.97 $232.80 11%
Louisiana-Pacific Corp. US:LPX 16.1% 12.1 50% $33.89 $36.13 7%
M/I Homes Inc. US:MHO 12.3% 7.1 50% $44.18 $51.50 17%
Argan Inc. US:AGX 11.4% 34.9 50% $42.98 $53.00 23%
TRI Pointe Group Inc US:TPH 11.2% 8.8 50% $17.33 $19.79 14%
Taylor Morrison Home Corp. US:TMHC 11.1% 8.4 75% $24.29 $27.88 15%
NVR Inc. US:NVR 10.5% 17.6 40% $4,207.18 $4,497.50 7%
Toll Brothers Inc. US:TOL 9.9% 10.9 28% $42.96 $45.75 6%
KB Home US:KBH 7.8% 11.6 40% $36.63 $37.92 4%
Owens Corning US:OC 7.5% 16.0 50% $69.17 $68.72 -1%
A.O. Smith Corp. US:AOS 5.3% 23.2 33% $49.36 $50.14 2%
Beacon Roofing Supply Inc. US:BECN 4.8% 16.6 24% $33.52 $33.08 -1%
Johnson Controls International plc US:JCI 3.0% 17.2 64% $41.30 $45.06 9%
Quanex Building Products Corp. US:NX 0.1% 30.0 67% $16.85 $18.33 9%
Cavco Industries Inc. US:CVCO -0.7% 26.8 33% $193.96 $216.00 11%
Tempur Sealy International Inc US:TPX -1.0% 14.5 70% $86.19 $103.38 20%
Eagle Materials Inc. US:EXP -6.8% 13.6 60% $84.35 $90.88 8%
Skyline Champion Corp. US:SKY -7.7% 27.8 67% $29.26 $32.00 9%
Jeld-Wen Holding Inc. US:JELD -8.2% 13.8 17% $21.49 $22.25 4%
Aecom US:ACM -9.0% 15.4 80% $39.23 $46.44 18%
Beazer Homes USA Inc. US:BZH -10.6% 12.0 0% $12.63 $11.00 -13%
Valmont Industries Inc. US:VMI -13.5% #N/A 40% $128.50 $139.33 8%
American Woodmark Corp. US:AMWD -13.8% 13.2 40% $90.07 $98.25 9%
Great Lakes Dredge & Dock Corp. US:GLDD -15.8% 11.9 100% $9.54 $15.18 59%
Southwest Gas Holdings Inc. US:SWX -15.9% 14.3 43% $62.39 $77.14 24%
Allegion PLC US:ALLE -16.0% 23.9 0% $104.00 $104.25 0%
Leggett & Platt Inc. US:LEG -16.3% 17.5 25% $41.49 $41.00 -1%
Armstrong World Industries Inc. US:AWI -18.4% 20.9 40% $76.09 $78.13 3%
Ethan Allen Interiors Inc. US:ETH -21.4% 27.5 0% $14.50 $14.00 -3%
Martin Marietta Materials Inc. US:MLM -25.5% 20.8 53% $207.32 $244.84 18%
MasTec Inc. US:MTZ -27.3% 9.2 100% $46.66 $54.82 17%
Mohawk Industries Inc. US:MHK -29.4% 11.8 31% $96.33 $92.93 -4%
Summit Materials Inc. Class A US:SUM -35.2% 18.7 76% $15.49 $21.78 41%
Carrier Global Corp. US:CARR N/A 19.5 38% $30.30 $28.70 -5%
 Source: FactSet

Click on the tickers for more about each stock, including the companies’ business profiles.

As always, if you are considering direct investments in any of the stocks listed here, you need to do your own homework to form an opinion of how well you expect the company to perform over the next several years.

You can see that many of the best performers have gotten well ahead of the consensus price targets. Then again, there are 25 with majority “buy” ratings, and many are still expected by analysts to should double-digit gains over the next 12 months.

Don’t miss:These ‘Dividend Aristocrat’ stocks have been raising their dividends for decades, and there have been no dividend cuts during the pandemic


Originally published on MarketWatch

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