There are more signs that the U.S. economy has reached a bottom. Some investors are starting to place major bets on a potential turnaround. Since the start of 2012, bank stocks have seen a huge move higher, presumably as confidence grows that the housing and job market might have nowhere to go but up from current levels. A stronger housing market means less foreclosures for the banks. There are a number of signs that support the idea that housing could be at the bottom now, and about to turn up. In many parts of the country, renting costs about the same or even more than buying would. Homebuilders sentiment has turned more positive in recent months, and in January, it rose to the highest level since June, 2007.
A strengthening housing market can benefit many other businesses and industries and the same is true for the job market. Jobs and housing also affects consumer confidence , which also has risen in recent months. Once one or more of these areas (jobs, housing, and consumer confidence) starts to gain enough traction, eventually all three will start going in the right direction. Once all three are going, you have a recipe for some very serious gains for stocks, even perhaps a raging bull market. Here is a closer look a some stocks that many investors will probably wish they owned when the economy is rolling and the stock market enters a major bull market. While some of these stocks have been trending higher, there is lots of rebound potential left in the long term, especially if you buy on dips:
Stanley Black & Decker, Inc. (NYSE:SWK) is a maker of power tools, hand tools, storage units, automatic garage openers, door locks, automotive tools, and much more. Stanley stock dropped to about $60 recently, but has been trending higher. The dividend is higher than average and the shares have a reasonable price-to-earnings ratio. The stock looks attractive now, but patient investors might want to wait for a dip to about $66, before considering a buy. When homebuilding and remodeling projects heat up, Stanley is likely to see much higher profits.
Here are some key points for SWK:
Current share price: $69.89
The 52-week range is $47.07 to $78.19
Earnings estimates for 2011: $5.17 per share
Earnings estimates for 2012: $5.93 per share
Annual dividend: $1.64 per share, which yields 2.3%
Fortune Brands Home & Security (NYSE:FBHS) makes a wide variety of products for the home such as cabinets, faucets, windows, locks and more. This company owns some very well-known brands including Moen Faucets, Simonton Windows, Kitchencraft Cabinetry, Masterlock, etc. Fortune has a strong balance sheet and the shares have a book value of $13.66. The stock was trading around $12.50 in October, and has been trending consistently higher. The stock is likely to pull back to at least the $15 level, and that would be a better entry point. The types of products this company sells will see a major rebound when housing and the job market improves. That's why it makes sense to be buying this stock on dips before a full economic recovery.
Here are some key points for FBHS:
Current share price: $17.86
The 52-week range is $11 to $18.38
Earnings estimates for 2011: 58 cents per share
Earnings estimates for 2012: 80 cents per share
Annual dividend: none
JP Morgan Chase (NYSE:JPM) is one of the largest banks in the United States. JPM is also one of the best managed banks in the market and has less risk to mortgage exposure compared with other major banks. This stock looks very undervalued for long-term investors and trades for less than 8 times 2012 earnings. It also trades below the book value of $45.95. This company is viewed to have less risk with mortgage exposure and excellent management. If JP Morgan can turn in very solid profits in a weak economy with significant foreclosure losses, the profits could surge when the company is no longer facing so many headwinds.
Here are some key points for JPM:
Current share price: $37.66
The 52-week range is $27.85 to $48.36
Earnings estimates for 2011: $4.58 per share
Earnings estimates for 2012: $4.93 per share
Annual dividend: $1 per share which yields 3.4%
Morgan Stanley (NYSE:MS) is a leading investment bank. This stock is trading at about 6 times 2012 earnings, and well below book value, which is $31.29. Morgan Stanley is trading for about half its 52-week high and it has been a favorite of the shorts. This creates the ideal situation for a long-term rebound. In a bull market environment, investment banks can thrive and earn huge trading profits and fees from initial public offerings, mergers and acquisitions, etc. In a normal market, stocks like Morgan Stanley would trade for a premium to book value, and that could put the stock at around $35 to $40 in a couple of years.
Here are some key points for MS:
Current share price: $18.14
The 52-week range is $11.58 to $31.04
Earnings estimates for 2011: $1.91 per share
Earnings estimates for 2012: $2.33 per share
Annual dividend: 20 cents per share which yields 1.1%
Weyerhaeuser Co. (NYSE:WY) is a leading wood products and forestry company that is engaged in raising and harvesting trees, making lumber, paper products, and even homebuilding. Demand for lumber is likely to surge in a stronger economy, and it could also be a solid hedge against rising inflation. This stock was trading for about $16.50 just about four weeks ago, but has been on the rise. After this run, the stock looks a little ahead of itself, but longer-term, there could be plenty of upside left. Because of that, I would wait for pullbacks and then hold for a long-term rebound in the housing market and this stock.
Here are some key points for WY:
Current share price: $19.94
The 52-week range is $14.82 to $25.33
Earnings estimates for 2011: 31 cents per share
Earnings estimates for 2012: 43 cents per share
Annual dividend: 60 cents per share which yields about 2.9%
Toll Brothers Inc. (NYSE:TOL) is a leading builder of luxury homes throughout the United States. This stock has jumped from about $14 in October to current levels, which is a rise of about 50%. Still, if you patiently wait for dips to around $20, this stock should have significant upside and long-term rebound potential. Toll Brothers shares have a book value of $15.61. If Toll Brothers is profitable now, just imagine what the numbers could look like when consumer confidence, the unemployment rate and the competition from cheap foreclosures improves.
Here are some key points for TOL:
Current share price: $22.89
The 52-week range is $13.16 to $23.68
Earnings estimates for 2011: 35 cents per share
Earnings estimates for 2012: 73 cents per share
Annual dividend: none
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.