Homes for the Holidays

12/11/2012 10:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

The US housing market may have actually hit a bottom and is now dragging itself up to its feet. And if that's the case, the four stocks below may benefit a great deal, observes Stephen Leeb of The Complete Investor.

The Federal Reserve will continue to buy mortgages, keeping long-term interest rates exceptionally low. Existing home sales have continued to improve from their 2010 lows. And while home prices are starting to rise, they still remain affordable by historical standards.

With these factors working in their favor, it’s not surprising that housing stocks have been outstanding performers in the past year or so—with plenty of upside room to grow. Here's a look at our favorites.

Home builder NVR (NVR) is a truly outstanding pure play in housing with no debt, healthy free cash flow, and excellent growth prospects. This extremely well-run company managed to remain profitable throughout the housing sector crash and is now well positioned to thrive during the sector’s revival.

We also like real estate developer Toll Brothers (TOL), whose operations are centered on luxury residential communities in 21 states across the US. This segment of the market has been the most resilient in the housing downturn, and should likewise fare best as the sector recovers.

In the “related companies” category, Wells Fargo (WFC) is a strong pick as the nation’s largest originator of mortgages, with Warren Buffett being the company’s biggest shareholder. With the stock trading at less than nine times 2013 earnings, it’s clearly undervalued.

And consider Masco (MAS), a Fortune 500 company that focuses on manufacturing and distribution of building products and branded consumer products for the home improvement and construction industries—it’s Home Depot’s (HD) largest supplier.

So our message here—and corresponding stock picks—remain consistent and clear. Look to a reviving housing and real estate sector as an essential component of the recovery.

And your best bets on this trend will be those housing and housing-related companies with strong fundamentals, sound management, and solid growth prospects in their own niche within this space.

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