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How to Play the Housing ‘Boom’

Troels Graugaard | E+ | Getty Images

Housing boom? Not yet, but anybody who plays the stock market knows, you get in before the boom, not during it.

That is why the stocks of the home builders are up triple digits from a year ago, as housing starts slowly rise from the ashes. But investors, if they believe in this recovery, should be looking beyond the builders to the more than 30 sectors that benefit directly from housing.

First, however, we have to decide if the boom is really coming, and more to the point, if the recovery is really here.

"I just don't see the reason to call this yet a major turning point, " said Robert Shiller, one of the creators of the S&P/Case-Shiller Home Price Indices . "Is this urgent? Should you buy right away? I just don't see the urgency."

Shiller is increasingly in the minority.

"If [housing] is pushed down far enough and long enough, as it was in the post-2008 housing depression, it will eventually snap back to levels that exceed historical norms, " wrote Roger Altman, the former U.S. Deputy Treasury Secretary and current Chairman of Evercore, in the Financial Times, arguing that a 'new housing boom' is already upon us. "That turn in the market is occurring now and it should become a boom by 2015."

Altman cites, among many compelling statistics, a Barclays report claiming home prices will exceed their 2006 peak by 2015.

If you believe in the boom theory, then you really want to take a look at this chart from John Burns Real Estate Consulting analyst Rick Palacios, Jr.:

"Stock market investors are clearly betting on a bright future for residential real estate, turning their attention to ancillary companies that will benefit from the trickle down nature of a true recovery. In fact, the early stages of a housing rebound have played out in similar fashion over the last 40 years, this one included, " notes Palacios.

So if you're taken by that 176% jump in wallboard, then you want to put your money in USG and Eagle Materials . If the 124 percent jump in flooring strikes you, then head to Lumber Liquidators and Armstrong World Industries . The kitchen and bath play works for Caesarstone , which makes countertops and backsplashes. Equipment rentals also have plenty of room to grow, and that's H&E Equipment .

Even more interesting are the non-pure plays, or companies you don't expect. For example, those that are big into land; they're up 56 percent, so look to the St. Joe Company, Howard Hughes Corp and Forestar Group . Or take a real outlier in the mortgage space, like Ellie Mae Inc . They went public last year, and the stock is up 405 percent year-over-year. They provide electronic mortgage origination in the U.S., according to Palacios, and their mortgage management software handles 20 percent of all U.S. mortgage originations.

We also know that historically there is a big pickup in demand for trucks and heavy duty equipment during housing recoveries.

What makes them run? Axles.

American Axle & Manufacturing Holdings is the play there. Its stock is up 35 percent from last year. The company designs, engineers, and manufactures driveline systems for light trucks and sport-utility vehicles. The Company produces axles, propeller shafts, chassis components, and forged products.

The opportunities for profit from recovery, be it slow and measured or fast and furious, are real and already in the making. Investors just need to decide if they believe in this recovery yet or not.

Sector Watch: US Home Builders

—Toll Brothers

—DR Horton

—Hovnanian Enterprises

—PulteGroup

—Ryland Group

—Lennar Corp

—Beazer Homes USA

—Meritage Homes

—KB Home

Questions? Comments? RealtyCheck@cnbc.com And follow me on Twitter @Diana_Olick

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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