Your Guide To The Industries

Investor's Business Daily

It is said that a rose is a rose, but Americans have learned "recovery" is a shifty word. And rebounds in distinct sectors like housing have unequal economic impacts .

Rising real estate markets earn a great deal of attention because they elevate a broad portion of the economy, in addition to builders.

For example, shippers, truck fleets and railroads move more lumber, pipe and other building supplies. Home furnishings makers and retailers turn inventories.

Here is a quick dossier on the industry groups and their top stocks most clearly hitched to the strengthening housing wagon. Rankings and stock gains are as of Wednesday.

Building-Residential Commercial, IBD Industry Rank: No. 8Homebuilders are the front-row beneficiaries of the rebound in housing demand. Through the past two decades, much of the industry consolidated into national, publicly held construction firms. These tend to rebound sharply as housing markets bottom and begin to recover. What comes next is uncertain.

From 2000 through the housing peak in 2005, the builders group thundered ahead more than 990%. The S&P 500 slipped 16% in that same stretch; the Nasdaq fell 37%.

The top stocks and Composite Ratings in the group: Ryland Group (RYL) (99), D.R. Horton (DHI) (97), Lennar (LEN) (96), Standard Pacific (SPF) (97), Pulte Group (PHM) (96), NVR (NVR) (92) and Toll Bros. (TOL) (78).

Building-Cement/Concrete Aggregates, No. 3This basic-materials group supplies residential, commercial and heavy construction trades with everything from sand and gravel to concrete and other construction staples. The group is cyclical, with most stocks offering some sort of dividend and limited earnings growth. Still, the group climbed 130%, outpacing homebuilders, in the 1990s. Between 2000 and its peak in June 2007, it gained 350%.

Its current top play is Dallas-based Eagle Materials (EXP). The cement and gypsum wallboard supplier holds a 94 Composite Rating from IBD, and its shares are up 103% so far this year.

Building-Construction Products/Miscellaneous, No. 4This group is a catchall of products suppliers, primarily to the home construction, remodeling and retail industries. There are no real leaders in the group, but Trex (TREX), Apogee Enterprises (APOG), American Woodmark (AMWD) and PGT (PGTI) are all at or near new highs.

Household-Appliances/Wares, No. 5SodaStream International (SODA), Middleby (MIDD) and iRobot (IRBT) are the group's most profitable stocks. But Whirlpool's (WHR) appliances see a direct benefit from rising home sales. It holds the group's biggest year-to-date gain, up 108%, as well as a commendable Composite Rating of 89.

Retail-Home Furnishings, No. 12This is a nesting group, with a healthy share of its audience being homebuyers settling into their new digs. Seven of the group's 13 stocks have EPS Ratings better than 80. Williams Sonoma (WSM) owns the best Composite Rating, a 98.

Real Estate-Development/Operations, No. 13These are primarily companies that manage commercial and multi-unit residential complexes. No leaders.

Commercial Services-Leasing, No. 11The largest player in this cross section of rental and leasing companies, measured by market capitalization, is United Rentals (URI). United sees a large portion of its most profitable business from contractors and construction firms needing large, heavy equipment, often on an extended basis.

The stock rose 62% in January through April. It corrected 44% after completing its $1.9 billion acquisition of peer RSC at the end of April. United Rentals is now up 44% so far this year.

Finance-Mortgage & Related Services, No. 1This year's most spectacular advance among building and real estate groups has little to nothing to do with the rebounding housing market. The group, led by Ocwen Financial (OCN) and NationStar Mortgage (NSM), benefits more from the industry's mortgage meltdown than it does from the recovery.

The housing finance crash led many big mortgage-lending banks to begin thinning their mortgage portfolios. Ocwen and NationStar have been the leaders in consolidating third-party servicing.

Once big banks finish auctioning portfolios, the growth of this market is likely to be limited to a portion of the new and refinanced mortgages written each year. But the group is up 145% year-to-date.

Building-Mobile/Manufacturing & RVs, No. 20Led by recreational vehicle makers Thor Industries (THO) and Winnebago Industries (WGO), this is more a leisure than a housing group. The group's main ties to the housing recovery are through Cavco Industries (CVCO), a leading builder of mobile and manufactured homes. It's up 24% this year but thinly traded.

Building-Heavy Construction, No. 17Led by Fluor (FLR) and Quanta Services (PWR), this group has thin ties to residential construction. Its customers tend to be governments, utilities, heavy industry and telecom providers. The group received a boost from Chicago Bridge & Iron's (CBI) $3 billion takeover of peer Shaw Group (SHAW), announced in July, and from the 97% year-to-date gain by thinly traded Empresas ICA (ICA), Mexico's largest construction firm.


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