“Yep, for years I’ve been saying that housing would finally turn in 2012,” he said. “Sure enough, now that we’re halfway through the year, it’s crystal clear from multiple inputs that the entire housing business is rebounding. “
While housing data released last week showed that pending home sales were down 1.4 percent month over month and new home sales clocked in at 350,000 — about 20,000 less than experts predicted – there was a footnote worth heeding: Weak pending home sales were being caused by low inventory, according to the National Association of Realtors.
“Can you believe that? Low inventories! In other words, not enough homes,” Cramer said.
Moreover, the trade group asked banks to speed up foreclosures to get more homes on the market.
“If that’s not bullish, I don’t know what is,” he added.
Cramer also said that he takes broad macro statistics “less seriously than what the individual companies in the sector are actually saying because it’s the companies that have their finger on the pulse of the industry.”
Last week, Pulte reported orders up 32 percent, and its stock soared 18 percent Thursday.
Meanwhile, Standard Pacific Homes said that orders were up 45 percent, sending the stock up more than 5 percent.
Two other companies signaled positive prospects: Wells Fargo, which owns a third of the mortgage business, reported a turn in housing; and Caterpillar noted an improvement in the sector.
How should investors play this news?
Cramer said that home builders have made strong runs, so it would be wise to wait for a pullback before buying stock in those companies.
Instead, the “stealth” housing play is U.S. Gypsum.
“USG is the largest manufacturer of gypsum wallboard in the United States, making up about 25 percent of the market,” he said. “They’re also the No. 1 player in Mexico and in eastern Canada.”
But why is this a stealth play?
Because last week the company disappointed, reporting a 15-cent loss in the quarter –2 cents worse than expected. The stock took a beating, plummeting 18 percent in a day.
“Since then, people have pretty much written off USG’s prospects, but that’s a mistake,” Cramer said. “USG imploded because the expectations got too high and the stock had run up too much — it was up 89 percent year to date going into the quarter.
“In other words, the stock was priced for perfection, and the quarter was anything but perfect.”
The estimates were strong, wallboard pricing was up 18 percent year over year, shipments were up 17 percent from last year and the company’s gross margin grew by 625 basis points.
Looking ahead, robust sales are expected in the historically strong fall season.
“In other words, the underlying trends were just fine, it’s just that the stock had gotten ahead of itself,” Cramer said. “Now, because of the disappointment, practically everybody’s ignoring USG even though it’s a terrific housing play.”
At least one investor was still a believer: Warren Buffett.
The Oracle of Omaha’s Berkshire Hathaway owns nearly 16 percent of USG, “a pretty sterling endorsement.”
The other element in its favor is that USG provides domestic security, with 93 percent of its sales from the United States, most of the rest from Mexico and Canada and only “a tiny bit of exposure” to Europe.
USG, Cramer pointed out, is not Whirlpool or Armstrong, both of which delivered poor results because of their exposure to Europe.
“The bottom line: Housing is definitely turning, but the homebuilders have already run so much that it would be crazy to chase them up here,” he said. “That’s why we need a stealth housing play, something like USG that makes the gypsum wallboard you need to build a home, but its stock has been written off because the company missed the numbers so badly last week.”
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