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Two Winners for the Housing Cycle

07/25/2019 5:00 am EST


Joe Duarte

Editor, Joe Duarte In the Money Options

Housing stocks have been a hit and miss affair all year, but there are two companies which should benefit from the current economic climate as long as bond yields and mortgage rates don’t start a nasty rising cycle and the job market doesn’t collapse, explains Joe Duarte, editor of In the Money Options.

One of the two is Skyline Champion (SKY) a designer and builder of mobile and modular homes. With tight incomes, high demand for housing and rising prices for traditional single family homes, SKY offers potential homeowners a lower price alternative, especially for first time buyers.

The company has a large share of the mobile market, has its cost structure under control and has recently offered positive guidance, which is rare in the homebuilder sector in these turbulent times.

Furthermore, it’s expanding its manufacturing capacity in the U.S., which suggests management is not just positive about the company’s prospects but that it’s aware of the changing global landscape for businesses due to tariffs and related matters and is making a big bet on the U.S. where the economy and the demographics are in their favor.

This is likely fueled by the 15% year over year growth in SKY’s home sales in the U.S., rising per unit average pricing, and growth in revenues, gross profit and margins. In the short term, the stock may gain further ground if its FEMA, hurricane season sales, pick up.

The second stock is LGI Homes (LGIH) a regional homebuilder, whose shares broke out of a multi-month base on July 12. The company is well positioned for growth via its widespread footprint in the Southern and Western U.S., especially in Texas, the Carolinas, Florida, Oklahoma, Alabama, Nevada, Tennessee and Georgia.

These are all areas which should benefit from the migration from high tax states and stable employment, a MEL related dynanic. LGI Homes recently reported record breaking second quarter 2019 home closing numbers with earnings due out on August 6.

From a technical standpoint, both Skyline Champion and LGI Homes also have positive money flow statistics including Accumulation-Distribution and On Balance Volume.

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