Goldman Sachs published a report entitled "U.S. Thematic Views" on January 9, 2012. The report isn't publicly available but we will summarize its main points. In the report, David J. Kostin, Stuart Kaiser, Amanda Sneider, Peter Lewis and Ben Snider mention 23 cyclically attractive risk-reward U.S. stocks that are likely to see an upside "if inventory levels, business fixed investment, housing investment, and consumer durable goods spending improve." With an improvement in data momentum and financial conditions, Goldman Sachs (GS) upgraded its first-quarter GDP growth estimate to 2% from 0.5%. Housing prices are expected to fall, while auto sales may rise by as much as 6%. In this article we will discuss seven stocks that are exposed to residential investment. All the stocks mentioned have been given a buy rating by Goldman Sachs.
Lowe's Companies, Inc. (LOW) is a home improvement retailer offering a wide range of products for maintenance, repair, remodeling, home decorating and property maintenance. It is a part of the Consumer Discretionary market segment and has a market capitalization of $33 billion. Shares of the company are currently trading at $26.3. Lowe's Companies has a price-to-book ratio of 1.98 and a return-on-equity of 10%. It has a beta of 1.21, indicating that the stock is volatile in nature. Bill Ackman initiated a brand new $400+ million position in LOW during the third quarter.
Home Depot (HD) is a home improvement retailer that sells a range of building materials, home improvement products, and lawn and garden products. It is a part of the Consumer Discretionary sector and has a market capitalization of $67 billion. Shares of the company are trading near yearly highs at $43.5 per share. Over the last 52 weeks, its shares have traded between $28.13 and $43.66. Home Depot reported a dividend yield of 2.7% and it has a return-on-equity of 20%.
PulteGroup (PHM) engages in the homebuilding and financial services businesses mainly in the U.S. It is a part of the Consumer Discretionary sector and has a market capitalization of $3 billion. Shares of the company are currently trading at $7.6 per share. It has a price-to-sales ratio of 0.73x and an enterprise-value-to-EBITDA ratio of 423x. PulteGroup has a beta of 1.66, making the stock quite volatile.
Toll Brothers (TOL) engages in the designing, building, marketing, and financing of homes in luxury residential communities. The company has a market capitalization of $3 billion and is a part of the Consumer Discretionary sector. It has reported a profit margin of 2.7% and a return on equity of 1.5%. Toll Brothers has an enterprise value to EBITDA ratio of 40x. It generated greater operating and gross margins of 5.6% and 23% than its peers. Shares of the company are currently trading at $22.8.
Sherwin-Williams (SHW) engages in the development, manufacture, distribution, and sale of paints, coatings and related products. It is a part of the Materials sector and has a market capitalization of $10 billion. Shares of the company are currently trading at $95 per share, and its beta 0.8 indicates that the stock is relatively stable. The increase in residential investment is likely to be positive for the company's valuation. Sherwin-Williams generated a return on equity of 30% and a profit margin of 5.8%. Its gross margin of 43% was greater than the industry average at 34%. Ken Griffin had $73 million in SHW at the end of September.
Louisiana-Pacific Corporation (LPX) manufactures and distributes building products for new home construction, repair and remodeling, manufactured housing, and light industrial and commercial construction. It is a part of the Materials sector and has a market capitalization of $1 billion. The company has an enterprise value to EBITDA ratio of 185x. Louisiana-Pacific generated a quarterly revenue growth of positive 8.6% versus the industry average of negative 16%. It also had a higher-than-industry average price-to-sales ratio of 0.87x. Shares of the company are currently trading at $8.8.
Weyerhaeuser (WY) is a forest product company that grows and harvests trees, builds homes, and manufactures forest products worldwide. It is a part of the Financials sector and has a market capitalization of $10 billion. The company has direct exposure to the housing market. Weyerhaeuser generated a return-on-equity of 9% and a profit margin of 6.5%. Also, the company reported an enterprise value to EBITDA ratio of 14.5x. Shares of Weyerhaeuser are currently trading around $20. John Paulson had $366 million in Weyerhaeuser at the end of September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.