4 Stocks to Play the Red-Hot Housing Market

The coronavirus has been a massive catalyst for the housing market. According to the latest NAHB/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly-built single-family homes increased six points to 78 in August, bouncing to its highest level in 35 years…

Low mortgage rates and low housing supply had been the primary drivers for the housing market boom over the past few years. However, the coronavirus has created an inflection point due to rising demand from people moving out of cities.

Median single-family home prices have increased in 96% of markets across the country, with a 4.2% average price increase annually. Most home builders have also reported a shortage in inventory, owing to the robust sale of properties.

With the increasing work-and-learn-from-home trend, the housing market should continue to gain in the upcoming years, as the demand for personal property may continue to rise. According to a LendingTree report, 53% of homebuyers are more likely to buy a home by 2021 due to the pandemic. Companies such as The Home Depot, Inc. (HD – Get Rating), American Homes 4 Rent (AMH – Get Rating), NVR, Inc. (NVR – Get Rating), and The Sherwin- Williams Company (SHW – Get Rating)  operating in the housing sector are expected to ride the boom.

The Home Depot, Inc. (HD)

As one of the largest retailers of home improvement products in the United States, the company offers its products to both do-it-for-me customers and third-party installers.  HD’s strong financial foundation and brand reputation allowed the stock to fare well even during the pandemic. It gained more than 100% to hit its 52-week high in August since hitting its 52-week low in March.

To keep up with the rising demand for home improvement products amid lockdown, HD announced the opening of three new distribution centers in Georgia. This was part of its ongoing $1.2 billion investment plan to expand its operations and market presence across the country. HD also increased its investment in the outdoor power categories group, in response to surging demand for products across the country.

HD reported a 23.4% year-over-year improvement in its net sales to $38.05 billion for the second quarter ended August 2020. Gross profit of $12.94 billion improved 24.1% from the same period last year. Operating income increased 23.9% over the year-ago period to $6.06 billion. Net earnings of $4.33 billion improved 24.5% from its year-ago value. Cash and cash equivalents balance of $14.32 billion increased 456.2% year-over-year.

HD had an impressive asset turnover ratio (also known as sales to total assets ratio) of 1.46 at the end of the quarter. This implies HD generated $1.46 for every dollar held as assets in the second quarter this year.

How does HD stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

A for Overall POWR Rating

You can’t ask for better. It is ranked #1 out of 67 in the Home Improvement & Goods industry.

American Homes 4 Rent (AMH)

AMH is an internally managed Maryland real estate investment trust (REIT) and is a leader in the single-family home rental industry. It is known nationwide for its high quality, good value rental homes with high tenant satisfaction. AMH’s main aim is to generate risk-adjusted returns for its investors by acquiring, renovating, and leasing properties across the United States, and distribute the same as dividends.

As the demand for residential real estate is rising around the country amid the pandemic, AMH opened several new…

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