The Commerce Department recently reported that housing starts rose 3.2% to an annual rate of 1.365 million in November, including a 10-month high for single-family construction, which is the biggest segment of the housing market. Building permits followed on their 5% surge in October by climbing another 1.4% in November, to a 1.482 million rate. That’s the highest level since 2007.
I should add that new homes sales rose 1.3% to a seasonally adjusted annual rate of 719,000 units in November. October’s figure was revised down to a seasonally adjusted annual rate of 710,000. Overall, new homes sales jumped 19.4% year-over-year.
There have also been positive developments in existing home sales. The National Association of Realtors recently reported that existing home sales came in at a seasonally adjusted annual rate of 5.35 million in November. That’s a slight decrease from October, but it’s up a nice 2.7% year-over-year.
Clearly, there are a lot of nuances in this market, and that’s true when it comes to picking housing stocks, too. Today I’d like to compare stocks in each of three popular subsectors – real estate investment trusts (REITs), insurance and mortgages – to see what makes for the best investment now.
First up is the REIT, AGNC Investment Corp. (AGNC). Shares offer an eye-popping 10.8% yield, sure to get income investors’ attention. But how does AGNC measure up on the fundamentals?
As you can see, AGNC’s Report Card from my Portfolio Grader leaves something to be desired. While its earnings stats aren’t entirely bad, AGNC gets an F for Earnings Growth…and for Sales Growth, Operating Margin Growth and Cash Flow to boot.
AGNC manages a C for its Quantitative Grade – my proprietary measure of institutional money flow – for an overall C grade. However, that’s not enough to make the REIT a buy in my stock-picking system.
Turning to insurance, Genworth Financial (GNW) is a heavyweight in that space with a $2.2 billion market cap, offering life insurance and long-term care insurance in addition to mortgage insurance.
Unfortunately, Genworth’s Report Card is no better:
While Genworth does manage a C for its Fundamental Grade overall, that includes poor Sales Growth, as well as downward earnings revisions from Wall Street analysts and a history of missing those expectations. Given the weak money flow reflected in its Quantitative Grade of D, GNW is a D-rated Sell overall.
So…which stocks DO allow us to profit from this hot housing market?
Given the ultra-low rates, which creates opportunity for buyers – and, thus, high demand for homes – you can’t go wrong with the mortgage lenders. In fact, one of these companies is my pick for InvestorPlace’s Best Stocks of 2020 Contest: PennyMac Financial Services (PFSI).
Now this is the kind of Report Card I like to see:
Overall, it’s a fantastic environment for the likes of PennyMac—and I suspect that it will add nicely to the company’s top and bottom lines in the upcoming quarters. And the analyst community agrees.
For the fourth quarter, analysts have upped earnings forecasts by a whopping 53.5% in the past three months. The current consensus estimate calls for 141.3% annual earnings growth and 73.1% annual sales growth.
In addition, PennyMac Financial Services is benefiting from the influx of income investors in the stock market, as the company has a history of rewarding its shareholders. Most recently, PFSI paid a quarterly dividend of $0.12 per share on November 20. The stock has a 1.4% dividend yield.
Housing Stocks are Just the Beginning
But if you’re a regular reader of Market360, you know I’m still very bullish on the market as we enter 2020.
The trade deficit is shrinking because the U.S. is now the largest crude oil exporter in the world, surpassing Saudi Arabia in June. Overall, a shrinking trade deficit boosts GDP growth-and that’s great news for the U.S. economy and stock market.
In addition, the U.S. jobs market continues to improve. The Labor Department reported that 266,000 jobs were created in November, which topped economists’ projections for 187,000 jobs. That was the largest monthly payroll increase since January. The end of the General Motors (GM) strike helped the U.S. economy add 41,000 auto manufacturing jobs in November and boosted the overall payroll figure.
The September and October payroll figures were also revised up by a cumulative 41,000. The unemployment rate dipped to 3.5% in November, down from 3.6% in October. Unemployment is now sitting at the lowest level in 50 years.
Now, the strong data doesn’t just mean great things for the U.S. economy, it also means great things for the stock market. It’s why I’m so bullish on 2020. So, I partnered with my friend and InvestorPlace colleague Matt McCall, who is equally excited about the New Year, to create the Power Portfolio 2020. We don’t want you to do “average” next year, we want you to bring in extraordinary returns.
So, the Power Portfolio 2020 is our exclusive guide for positioning your portfolio to take advantage of all next year will have to offer investors. We’ve honed in on 10 stocks we expect to crush the market and already one stock is up about 15%!