According to the Bankrate survey of large lenders, the average interest rate on a 30-year fixed-rate mortgage was 7.17% as of May 29, 2024. The same survey showed median home prices are above $400,000 and pending home sales are down 7.7%.
That news would make it seem odd to consider housing stocks a good buy, but the housing market is proving to be nothing if not resilient. Despite restrictive monetary policy pushing interest rates (and mortgage rates) higher for longer and inflation raising the price of new constructions, the appetite for homes continues to rise.
However, the market is forward-thinking. If interest rates move lower at some point in late 2024 or even early 2025, that will be bullish for new home sales. Lower rates would, therefore, logically be bullish for housing stocks. In this special presentation, we're looking at seven housing stocks you can buy today with the expectation of a strong return as the housing market normalizes.
Quick Links
- D.R. Horton
- Owens Corning
- Centerspace
- Lowe’s Companies
- Sherwin-Williams
- RH
- Zillow Group
#1 - D.R. Horton (NYSE:DHI)
Homebuilder stocks are one of the obvious ways to invest in the housing market, and D.R. Horton Inc. (NYSE: DHI) is one of the top names for investors to watch. In 2023, the impact of rising producer costs ate into the company’s bottom line. However, in its first two quarters of fiscal year 2024, the company has posted year-over-year gains in earnings per share.
Not surprisingly, the company is showing year-over-year gains in both homes closed and home sales revenues. For some investors, this was foreshadowed by Warren Buffett, who started buying DHI stock in December 2023, to the surprise of some investors.
That may have seemed like an early call, but for value investors like Buffett, it’s better to be early than late. This is particularly true when a company generates significant cash flow from its homebuilding operations, even in a down market. One way that D.R. Horton uses that cash flow is to pay dividends, which have amounted to $5.4 billion in the last five years.
And since the company’s last earnings report, the D.R. Horton analyst ratings on MarketBeat show two analysts have increased their price targets far above the consensus price of around $158.
About D.R. Horton
D.R. Horton, Inc operates as a homebuilding company in East, North, Southeast, South Central, Southwest, and Northwest regions in the United States. It engages in the acquisition and development of land; and construction and sale of residential homes in 118 markets across 33 states under the names of D.R.
Read More - Current Price
- $194.80
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $182.07 (6.5% Downside)
#2 - Owens Corning (NYSE:OC)
Owens Corning (NYSE: OC) is a company that is adjacent to the homebuilding industry. The company provides several of the core building materials needed in both the residential and commercial building industries. The company operates in three core areas: roofing, insulation, and composites.
OC stock is trading near the top of its 52-week range. However, there still appears to be value for investors. For starters, the stock is trading at around 11x forward earnings. Second, the company continues to beat analysts’ estimates. And although top line revenue growth is slowing, the company is making up for it on its bottom line, which shows strong year-over-year growth.
Some analysts may believe that growth is priced into the stock. However, that doesn’t seem to be the case, according to the analyst ratings on MarketBeat, which show that several analysts have a price target significantly higher than the consensus price of $172.07. Plus, the company is committed to returning 50% of its free cash flow, which was $128 million in the first quarter of 2024, to investors.
About Owens Corning
Owens Corning manufactures and sells building and construction materials in the United States, Europe, the Asia Pacific, and internationally. It operates in three segments: Roofing, Insulation, and Composites. The Roofing segment manufactures and sells laminate and strip asphalt roofing shingles, oxidized asphalt materials, and roofing components used in residential and commercial construction, and specialty applications.
Read More - Current Price
- $165.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $184.23 (11.3% Upside)
#3 - Centerspace (NYSE:CSR)
Centerspace (NYSE: CSR) offers a different way to play the housing market. The company is a real estate investment trust (REIT) that owns and operates in 70 apartment communities, mainly in the upper Midwest.
First, the bad news. CSR stock is trading near the top of its 52-week range, and it's not profitable. That suggests analysts have fully priced the company's 4.1% projected earnings growth into the stock. The company also posted a slight year-over-year decrease (0.3%) in occupancy, which correlates to the company raising rental prices.
However, occupancy levels of 94.6% are still at a strong level for a residential REIT. And as of March 31, 2024, the company reported receiving gross proceeds of $101.4 million after selling six lower-rent and lower-margin communities with higher capital expenditure (capex) needs.
On May 24, 2024, Raymond James upgraded Centerspace from Market Perform to Outperform and raised its price target to $75. That's more than 10% above the consensus price target of $67.57.
About Centerspace
Centerspace is an owner and operator of apartment communities committed to providing great homes by focusing on integrity and serving others. Founded in 1970, as of September 30, 2023, Centerspace owned interests in 71 apartment communities consisting of 12,785 apartment homes located in Colorado, Minnesota, Montana, Nebraska, North Dakota, and South Dakota.
Read More - Current Price
- $75.50
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $72.29 (4.3% Downside)
#4 - Lowe’s Companies (NYSE:LOW)
Lowe’s Companies Inc. (NYSE: LOW) is part of a duopoly in the home improvement retail business with The Home Depot Inc. (NYSE: HD). Despite a challenging housing market, LOW stock has posted a 131.9% gain in its share price over the last five years. Much of that is due to the company’s strength in improving its contractor (PRO) channel business.
LOW stock is down over 2% in 2024 as it faces rough comparisons to 2023. However, in its most recent earnings report, Lowe’s showed comparable store growth above the company average in six out of 15 regions. And two of the strongest areas for the company were lumber and building materials, which suggests there could be a recovery in the housing sector.
Either stock could make a good addition to a list of housing stocks to buy, but as of June 3, 2024, Lowe’s looks to have a slightly better earnings outlook. Plus, the stock appears to be building support at around $210, and investors are getting a Dividend King that has increased its dividend for 52 consecutive years.
About Lowe's Companies
Lowe's Companies, Inc, together with its subsidiaries, operates as a home improvement retailer in the United States. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. It also provides home improvement products, such as appliances, seasonal and outdoor living, lawn and garden, lumber, kitchens and bath, tools, paint, millwork, hardware, flooring, rough plumbing, building materials, décor, and electrical.
Read More - Current Price
- $255.41
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $252.83 (1.0% Downside)
#5 - Sherwin-Williams (NYSE:SHW)
The Sherwin Williams Company (NYSE: SHW) appears to be an undervalued opportunity for investors to consider. The company is narrowly focused on paint. But if you’re going to be narrowly focused in a challenging housing environment, paint is a good place to be.
Over the past five years, investors in SHW stock have enjoyed a 113.3% stock price increase in addition to a dividend that, while not having an impressive yield, has increased for 48 consecutive years. And with projected earnings growth of around 11%, that dividend streak shows no signs of slowing down. However, the company’s stock has been down just over 9% in the three months ending June 3, 2024, likely due to concerns about declining year-over-year earnings per share.
But if that’s true, the analysts are telling a different story. The Sherwin Williams analyst ratings on MarketBeat show several analysts increasing their price targets for SHW stock. Those price targets are well above the consensus price target of $344, which is 15% higher than the price of SHW as of June 3, 2024.
About Sherwin-Williams
The Sherwin-Williams Company engages in the development, manufacture, distribution, and sale of paints, coating, and related products to professional, industrial, commercial, and retail customers. It operates through three segments: Paint Stores Group, Consumer Brands Group, and Performance Coatings Group.
Read More - Current Price
- $375.40
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $362.68 (3.4% Downside)
#6 - RH (NYSE:RH)
If you’re a past or current shareholder of RH (NYSE: RH), your feelings about owning the stock may depend on when you bought it. RH, formerly Restoration Hardware, is a major retailer in the luxury home furnishings market. The stock is up more than 220% in the last five years. However, the stock is down more than 60% from the all-time high of $722.94 set in August 2021.
This sector showed outsized growth as the housing market exploded in 2020 and 2021, so it makes sense that it’s showing outsized contraction as the market normalizes. But long-time shareholders who took a little profit in 2021 are getting rewarded with normalization at a much higher average price.
And although the RH analyst ratings on MarketBeat have a consensus rating of Hold on the stock. The price target of $332.15 is 21% higher than the stock’s price on June 3, 2024. One caveat for buyers is that short interest remains above 14%. However, with institutional ownership of around 90% and buying outnumbering selling in the past year, RH still looks like a housing stock to own.
About RH
RH, together with its subsidiaries, operates as a retailer in the home furnishings market. The company offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, baby, child, and teen furnishings. It provides its products through rh.com, rhbabyandchild.com, rhteen.com, rhmodern.com, and waterworks.com online channels, as well as operates RH Galleries, RH outlet stores, RH Guesthouse, and Waterworks showrooms in the United States, Canada, the United Kingdom, and Germany.
Read More - Current Price
- $321.87
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $313.08 (2.7% Downside)
#7 - Zillow Group (NASDAQ:Z)
Zillow Group Inc. (NASDAQ: Z) is another cyclical housing stock that has been a poor investment in the past two years. And unlike the previously mentioned RH, if you bought this stock five years ago and still hold it today, you’re sitting on a slight loss.
But many investors may not realize that Zillow has continued to grow revenue year over year in the past 12 months. The issue, for now, is on the bottom line. The company flipped from positive earnings to negative earnings in 2022 and has yet to recover.
However, analysts believe the company, which runs a digitalized real estate brokerage platform, will turn its earnings positive in the next 12 months. If that happens, it should justify the consensus price target of over $57 per share for ZW stock, which would be a 43% upside for investors.
About Zillow Group
Zillow Group, Inc operates real estate brands in mobile applications and Websites in the United States. The company offers premier agent and rentals marketplaces, new construction marketplaces, advertising, display advertising, and business technology solutions, as well as dotloop and floor plans. It also provides mortgage originations and the sale of mortgages, and advertising to mortgage lenders and other mortgage professionals; and title and escrow services.
Read More - Current Price
- $59.74
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $57.20 (4.3% Downside)
It's easy for homeowners of a certain age to remark that mortgage rates above 10% weren't unusual when they bought their first home. At the same time, an entire generation has since been conditioned to believe that interest rates below 5% and even around 3% are the norm.
As with many things, the truth is somewhere in between. And that's just about where mortgage rates are today, in the low to mid 7% range. However, if you're an investor, it's fair to ask if that number is closer to the floor or the ceiling. If it's the latter, then it's a good time to look at housing stocks that analysts believe can move much higher.
This special report shows you that, even if you don't want to invest in homebuilder stocks, there are different ways to invest in housing stocks. And with MarketBeat, you can add multiple stocks to a watchlist, so you'll never miss a timely update on a stock you're watching.
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