Trading a Housing Bottom
Believe it or not, the housing stocks have had a nice run. Yes, housing. The very sector at the center of this financial mess we’ve been in since August 2007. Cramer thinks it’s a sign of a bottom we’ll see by June of next year. But if these stocks are already up, how do we play the return of housing?
Cramer likes Masco , and early-cycle play that makes kitchen and bath cabinetry, plumbing and other homebuilding necessities and also provides instillation services. It’s a best-of-breed business, he said, that should bounce when house depreciation stops and homes prices start to turn up.
Masco gets 37% of sales from new U.S. homes and 40% from U.S. remodeling. The lower housing starts expected for the rest of 2008 and all of 2009 are already priced into this $17.43 stock, but there should be an increase in starts come 2010. Plenty of that new business, Cramer said, should go to Masco.
But why buy now and sit on the stock? Because Masco’s 4.9% dividend yield alone is worth holding. Masco has taken a hit the past couple of days, but Cramer said the payout is safe. In fact, the company just raised the dividend earlier this month for the 50th straight year.
Masco’s been reducing its debt, too, and buying back stock. The company plans to buy back another 9% of shares outstanding. Plus, money is flowing into research and development, allowing Masco to develop products that outperform the competition. This is a key strategy for a company that has a habit of grabbing market share during a downturn such as the one we’re in.
At first glance the stock may look expensive trading at 23 times earnings, but all early-cycle stocks are when the time is right to buy. Once the earnings turn around when housing bottoms, which is what Cramer’s expecting, then that multiple will come down.
But you should consider getting in on Masco now, even if it’s only to enjoy that dividend payout.
Questions for Cramer? email@example.com
Questions, comments, suggestions for the Mad Money website? firstname.lastname@example.org