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Playing The Housing Rebound

|Includes: KB Home (KBH), STLY

Since the housing market bottomed in 2009, we have seen a substantial recovery in the sector in general. Housing starts are up against yearly highs, construction is booming and despite mortgage rates rising, they are still low historically. Lenders are eagerly offering loans and mortgages; an area of the financial services sector that has done very well this year. Unemployment continues to stall the bull from running. However, while the jobs recovery may be slow, we are certainly seeing a recovery. Not to mention, the potential aid from the U.S. government in the form of tax breaks.

Housing data continues to shine as manufacturing has seesawed over the past few months and jobs remain to see any significant improvements. This leads me to believe that gaining exposure to this market would certainly be an ideal investment decision. I believe this because as the markets continue to rally, it can be hard to find opportunities and follow hard trends rather than just riding the currents. Housing has been strong; therefore this area will likely see increased exposure to institutional money managers and insiders alike. However, rather than simply buying a construction company like KB Home (NYSE: KBH) (which is still a good trade), think outside the box. For instance, with all these homes being built and sold, it is pretty safe to say that the furniture stocks could be a nice rise. I don't know about you, but there is no one that I know that I can recall not having furniture in their homes. This could be a big opportunity for smaller firms like Stanley Furniture Co. Inc. (NASDAQ: STLY) to gain nice exposure and establish a higher presence in market share.

Stanley Furniture is a small company with a market cap of $51.3 million, yet it has a solid reputation behind it and business model. Stanley focuses on more upscale style furniture for every room in your house. The company was founded in 1924, so they certainly have an established reputation.

Turning to the fundamentals, the company was absolutely whacked during the downturn and is still struggling to regain its footing and posture. The company currently has no price to earnings or forward price to earnings ratios, signaling that further gains are needed before profitability occurs. The stock is trading at a discount when looking at its price to sales ratio of .53 and price to book of .63. On the bright side, the company has $1.61 cash per share and no debt obligations. Additionally, earnings per share are forecast to rise 700% this year, 35% next year, and 2% over the next five years.

Another very bullish signal for the stock is that its insider transaction log shows transactions are up 63.75% in favor of bullish positions. This means that the board of directors and executives who run Stanley Furniture are confident that business will turnaround as the housing market continues to climb. I recommend taking a look at Stanley Furniture to see if it is right for your portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.