The housing market is one of the most cyclical sectors for investors to navigate. During bull markets, you can metaphorically put on a blindfold, throw a dart at a listing of stock tickers, and make a profit. And as you know the housing market is one of the first sectors to recover in a bull market.
The opposite is true as well. The housing market is one of the first sectors to signal economic pain is on the horizon. Just in the past 30 years, you can see the correlation between the housing market and the broader market.
But there's always money to be made in the market, if you know where to look. There are several companies that investors can look to during a housing downturn. That's the focus of this special presentation. These companies give investors reasons beyond home building or home buying to own their stock. These may not be robust growth stocks, but during a housing downturn, you'll take a little growth over a loss any day.
Quick Links
- Sun Communities
- American Tower
- Prologis
- Ventas
- Eagle Materials
- Lowe’s
- Home Depot
#1 - Sun Communities (NYSE:SUI)
Sun Communities (NYSE:SUI) owns and operates manufactured home communities that also includes recreational vehicle (RV) and marina resorts. One aspect of manufactured home communities is that many include a combination of homes that the resident owns and others that are available for rent. And historically, rent prices tend to increase for about a year after home prices crash.
That means that at the beginning of a housing downturn investing in companies with exposure to rental properties can be a way to diversify your portfolio. SUI stock is down 30% in 2022, but it’s been a consistent performer over the last five years rewarding investors with a 56% gain outside of the dividend. And the company is expected to grow revenue at around a 10% rate in the next five years.
And with a dividend yield right around 2.5% which is in line with the S&P 500 average. And with an annual payout of $3.52 per share, Sun Communities gives investors a good reason to own the stock even in a housing downturn.
About Sun Communities
Established in 1975, Sun Communities, Inc became a publicly owned corporation in December 1993. The Company is a fully integrated REIT listed on the New York Stock Exchange under the symbol: SUI. As of December 31, 2023, the Company owned, operated, or had an interest in a portfolio of 667 developed MH, RV and Marina properties comprising 179,310 developed sites and approximately 48,030 wet slips and dry storage spaces in the U.S., the UK and Canada.
- Current Price
- $123.68
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $137.08 (10.8% Upside)
#2 - American Tower (NYSE:AMT)
Real estate investment trusts (REITs) offer investors a conservative way to invest in real estate. REITs own and collect rent from the properties they own. This means that successfully investing in a REIT has a lot to do with what properties a REIT owns.
That brings us to American Tower (NYSE:AMT). The company’s portfolio consists mostly of cellular towers spread across 25 countries on six continents.
American Tower has been on investors’ radars for several years because of the necessity to build out the 5G infrastructure not just in the United States but around the world. The 5G buildout is expected to last for several years and American Tower has a wide moat. It shares the U.S. market with Crown Castle International (NYSE:CCI) and SBA Communicaions (NASDAQ:SBAC).
The AMT stock price has increased 48% over the last five years. And investors get a growing dividend that has a yield of 2.63% and an annual payout of $5.88 per share.
About American Tower
American Tower, one of the largest global REITs, is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of over 224,000 communications sites and a highly interconnected footprint of U.S. data center facilities.
- Current Price
- $183.73
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $235.08 (28.0% Upside)
#3 - Prologis (NYSE:PLD)
The second of the three REITs on this list is Prologis (NYSE:PLD). The company is an investment in the industrial supply chain. The company owns over 1 billion square feet of leased space. And in the last 10 years, Prologis has benefited from the need for companies to add real estate for warehouses and distribution centers.
Even if the rate of growth slows in the current recession, this demand is expected to continue for the rest of the decade. And that will fuel the company’s growth. Revenue is forecast to grow by approximately 20% over the next five years. PLD is up 75% in the last five years. And that’s in addition to a dividend that has a 2.72% dividend ratio, an annual payout of $3.16 per share, and one that has been increasing for the last nine years.
About Prologis
Prologis, Inc is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. At March 31, 2024, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 1.2 billion square feet (115 million square meters) in 19 countries.
Read More - Current Price
- $103.32
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $128.88 (24.7% Upside)
#4 - Ventas (NYSE:VTR)
The last of the REITs on this list is Ventas (NYSE:VTR) which gives you exposure to the health care sector and specifically senior health care. The aging of America continues as the baby boomer generation is now entering their golden years. Ventas owns and operates over 1,200 properties that focus on senior housing and health care.
The company will benefit from the need to not only house but manage the health care needs of this huge demographic sector. That means that revenue and earnings are not going to be a problem. For example, the company’s revenue took a hit at the onset of the Covid-19 pandemic, but it has largely recovered. And that’s reflected in the company’s stock price which is “only” down 11% in 2022.
And institutional investors own about 92% of VTR stock which means that many investors will Ventas as part of their mutual funds or ETFs. One reason for that is the company’s dividend which currently has a juicy yield of nearly 4%.
About Ventas
Ventas Inc (NYSE: VTR) is a leading S&P 500 real estate investment trust focused on delivering strong, sustainable shareholder returns by enabling exceptional environments that benefit a large and growing aging population. The Company's growth is fueled by its senior housing communities, which provide valuable services to residents and enable them to thrive in supported environments.
Read More - Current Price
- $58.76
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $65.67 (11.8% Upside)
#5 - Eagle Materials (NYSE:EXP)
Another way for you to invest in a housing downturn is to invest in the companies that offer the building materials that will be needed as the nation rebuilds its infrastructure. And one of those companies is Eagle Materials (NYSE:EXP).
Eagle Materials supplies both the heavy construction materials and light building materials that will be in demand as the nation undertakes a variety of projects. That’s being reflected in the company’s revenue and earnings which are up on a year-over-year basis. That trend is likely to continue with single digit growth in revenue and earnings.
EXP stock has a Moderate Buy rating by a consensus of analysts tracked by MarketBeat. And the stock has a 12% upside from its current price. And unlike some of the stocks on this list, EXP stock looks to have a fair valuation and may even be slightly undervalued. On the other hand, Eagle Materials does not pay a significant dividend.
About Eagle Materials
Eagle Materials Inc, through its subsidiaries, manufactures and sells heavy construction materials and light building materials in the United States. It operates in four segments: Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard. The company engages in the mining of limestone for the manufacture, production, distribution, and sale of Portland cement, including Portland limestone cement; grinding and sale of slag; and mining of gypsum for the manufacture and sale of gypsum wallboards used to finish the interior walls and ceilings in residential, commercial, and industrial structures, as well as well as containerboard and lightweight packaging grades; manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters; the sale of readymix concrete; and mining and sale of aggregates, such as crushed stone, sand, and gravel.
Read More - Current Price
- $248.30
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $304.89 (22.8% Upside)
#6 - Lowe’s (NYSE:LOW)
The last two stocks on this list are somewhat contrarian picks. Several analysts will say that home improvement stocks are not a good investment during a housing downturn. And that’s an understandable opinion.
Lowe’s (NYSE:LOW) is a good example of a stock that’s been impacted by this opinion. From March 2020 to December 2021, LOW stock bounced 293%. And that was on top of a dividend that the company has grown for 48 consecutive years.
But since that 52-week high, the stock is down 20% as investors believe that the stock will underperform. However, a home is still an investment that needs to be maintained. And when homeowners are looking to beautify or update their home, they will turn to home improvement companies.
To that end, Lowe’s is posting revenue and earnings that are comparable to their numbers from 2021. That suggests that home improvement may still be in a multi-year bull cycle.
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
- $247.72
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 16 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $280.85 (13.4% Upside)
#7 - Home Depot (NYSE:HD)
Home Depot (NYSE:HD) represents the other half of the duopoly in home improvement stocks. When it comes to loving the home you have, many consumers think immediately of Home Depot’s signature orange signage.
One reason that you can be bullish about Home Depot is that the company is now an omnichannel retailer. That means consumers can place orders digitally and pick up those orders at the store, access curbside delivery, or have the products delivered to their homes.
Prior to the pandemic, some investors were concerned about the expenses that the company was taking on to bulld its digital footprint. But the company was in a unique position to assist homeowners who couldn’t go to the store.
HD stock is down 24% for the year but, like Lowe’s, it is beating earnings and revenue results on a year-over-year basis. And while Home Depot is not yet a dividend aristocrat like Lowe’s, it does offer a dividend with a yield of 2.41% and has a payout of $7.60 on an annual basis.
About Home Depot
The Home Depot, Inc operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows.
Read More - Current Price
- $392.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $426.00 (8.5% Upside)
As you can see, many of the stocks on this list are good stocks to own at any time. But if you're looking to maintain a diversified portfolio in a housing downturn, the stocks listed here are solid choices. One reason for that as you read is that many of these stocks pay a dividend. So you get paid even if the stock doesn't provide market-beating capital growth.
And just like other sectors, when investing in the housing sector it's important to focus on areas of the market that are likely to be recession proof. In 2022, that means looking at health care and stocks that allow you to take advantage of increased infrastructure spending which will likely prop up the market in the next several years.
If you're looking for a different way to invest in this housing downturn, you could consider an exchange-traded fund (ETF) that focuses on housing infrastructure are the Invesco Dynamic Building & Construction ETF (NYSEARCA:PKB) and the Hoya Capital Housing ETF (NYSEARCA:HOMZ). Investors with a higher risk tolerance may want to look at an inverse ETF such as the ProShares UltraShort Real Estate (NYSEARCA:SRS).
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