Now that tax reform has become a reality, many economists as well as many investors are anticipating a boom in GDP of at least north of 3%, asserts Jim Woods, editor of Successful Investing.
One area of the economy poised to continue its recent growth is housing. In November, U.S. single-family housing starts proceeded at the stoutest pace in a decade.
Moreover, a December survey of homebuilders showed confidence in the sector soaring to near an 18-1/2-year high due to optimism over buyer traffic and sales.
And though tax reform alters the mortgage interest deduction and property tax deductions that many homebuilders fought, many builders now see the various business incentives in the tax reform law as overshadowing the negatives.
Taking advantage of solid housing market is mortgage insurance and reinsurance provider Essent Group Ltd. (ESNT). The Bermuda-based firm provides the insurance coverage that largely inoculates lenders by paying them when a borrower defaults on a mortgage.
Insurance premiums are paid by the homeowners, of which many are required to purchase the mortgage insurance policy as a condition of loan approval.
The revenue and earnings per share generated in this business are huge, and the margins are very high (margins were north of 50% in fiscal Q1 and Q2, 2017). The result on Essent’s bottom line has been an outstanding three-year earnings per share growth rate of 47%.
The company’s growth in 2017 helped vault the shares nearly 38% higher. If we see continued improvement in housing along with improvements in the overall economy in 2018, it could be an even bigger year for Essent shares.
