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As Americans have been forced to stay at home for work, school and even visits to the doctor, shares of cloud-services providers have soared. But there’s something else going on that points to a long-term trend investors need to know about: a housing shortage outside cities, and a boom in home renovation and improvement.
It’s understandable that at a time when people have to stay home that cloud-services providers such as Zoom Video Communications Inc. US:ZM will soar. The stock is up 20% this month and 349% for 2020. The familiar FAANG stocks (plus Microsoft Corp. US:MSFT ) have also surged this year:
| Company | Ticker | Total return – 2020 |
| Facebook Inc. Class A | US:FB | 43% |
| Apple Inc. | US:AAPL | 71% |
| Amazon.com Inc. | US:AMZN | 84% |
| Netflix Inc. | US:NFLX | 62% |
| Alphabet Inc. Class C | US:GOOG | 23% |
| Alphabet Inc. Class A | US:GOOGL | 22% |
| Microsoft Corp. | US:MSFT | 46% |
| Source: FactSet | ||
But variety is the spice of life — and an excellent tool to cut risk in your investment portfolio and avoid missing out on opportunities.
As people are stuck inside, they are also improving their homes. Others are trying to move away from cities, leading to incredibly strong markets for home sellers in suburbs and rural areas. That points to a housing shortage and good times for home builders, suppliers to those builders and home-improvement retailers, including Home Depot Inc. US:HD and Lowe’s Cos. US:LOW.
Digging further, consider a company such as Pool Corp. US:POOL, which bills itself as “the world’s largest wholesale distributor of swimming pool supplies, equipment and related leisure products” and has well over 100,000 wholesale customers. This stock is up 57% this year.
It’s easy to screen the broad indexes for home-builder stocks, but it is difficult to identify companies similar to Pool Corp. US:POOL, because a company’s industry listing may be something vague like “wholesale distributors” within the consumer discretionary sector.
Of course, an excellent way to play the home construction/renovation trend is through exchange traded funds that focus on appropriate industries. So we looked to three U.S. construction and home improvement-related ETFs, combined their holdings and removed their duplicates for a list of stocks.
Here are the three ETFs:
• The iShares U.S. Home Construction ETF US:ITB holds shares of home builders and companies that supply them, including the large home-improvement chains. The portfolio is weighted by market capitalization.
• The SPDR S&P Homebuilders ETF US:XHB holds an equal-weighted group of companies involved with home building and supplying builders.
• The Invesco Dynamic Building & Construction ETF US:PKB holds 30 U.S. construction companies, and isn’t focused only on home construction.
Here’s how the three ETFs have performed this year:
FactSet
Taking the three ETFs together and eliminating duplicate holdings, we are left with a group of 69 stocks, 42 of which have had double-digit returns this year.
So here’s the entire list, sorted by how well the stocks have performed this year. This is a lot of data — scroll the table to see all the information, which includes forward price-to-earnings ratios, percentage of “buy” ratings among sell-side analysts and 12-month price targets:
| Company | Ticker | Total return – 2020 | Forward P/E | Share ‘buy’ ratings | Closing price – Aug. 28 | Consensus price target | Implied 12-month upside potential |
| Lumber Liquidators Holdings Inc. | US:LL | 161.0% | 28.9 | 20% | $25.50 | $22.00 | -14% |
| Trex Co. Inc. | US:TREX | 66.2% | 51.2 | 25% | $149.39 | $137.09 | -8% |
| Meritage Homes Corp. | US:MTH | 61.8% | 10.4 | 63% | $98.90 | $106.00 | 7% |
| LGI Homes Inc. | US:LGIH | 60.8% | 11.4 | 20% | $113.58 | $119.50 | 5% |
| Tractor Supply Co. | US:TSCO | 58.7% | 24.5 | 40% | $146.91 | $154.60 | 5% |
| Pool Corp. | US:POOL | 56.9% | 41.8 | 50% | $330.90 | $321.67 | -3% |
| TopBuild Corp. | US:BLD | 52.1% | 22.0 | 90% | $156.76 | $163.30 | 4% |
| Floor & Decor Holdings Inc. Class A | US:FND | 44.2% | 50.2 | 57% | $73.26 | $75.16 | 3% |
| Watsco Inc. | US:WSO | 40.9% | 38.0 | 11% | $246.35 | $200.60 | -19% |
| Lowe’s Cos. Inc. | US:LOW | 40.2% | 20.2 | 80% | $165.51 | $182.33 | 10% |
| SiteOne Landscape Supply Inc. | US:SITE | 39.4% | 55.7 | 22% | $126.34 | $119.00 | -6% |
| D.R. Horton Inc. | US:DHI | 37.4% | 11.1 | 63% | $71.84 | $75.06 | 4% |
| Century Communities Inc. | US:CCS | 37.4% | 8.6 | 33% | $37.57 | $43.17 | 15% |
| Lennar Corp. Class A | US:LEN | 37.0% | 12.3 | 50% | $75.93 | $75.44 | -1% |
| Lennar Corp. Class B | US:LEN | 35.3% | 9.8 | 47% | $59.92 | $75.34 | 26% |
| Home Depot Inc. | US:HD | 32.8% | 24.4 | 63% | $286.29 | $306.19 | 7% |
| Fortune Brands Home & Security Inc. | US:FBHS | 32.1% | 21.0 | 29% | $85.41 | $82.77 | -3% |
| Masonite International Corp. | US:DOOR | 28.5% | 15.6 | 57% | $92.78 | $103.83 | 12% |
| Gibraltar Industries Inc. | US:ROCK | 28.4% | 21.2 | 100% | $64.78 | $68.50 | 6% |
| Installed Building Products Inc. | US:IBP | 28.3% | 19.0 | 67% | $88.33 | $101.27 | 15% |
| UFP Industries Inc. | US:UFPI | 28.2% | 18.0 | 40% | $60.82 | $58.80 | -3% |
| Quanta Services Inc. | US:PWR | 26.6% | 13.3 | 100% | $51.39 | $54.38 | 6% |
| Simpson Manufacturing Co. Inc. | US:SSD | 26.2% | 28.6 | 0% | $100.62 | $93.75 | -7% |
| PGT Innovations Inc. | US:PGTI | 25.6% | 17.0 | 40% | $18.72 | $20.88 | 12% |
| Builders FirstSource Inc. | US:BLDR | 24.6% | 14.6 | 90% | $31.67 | $34.40 | 9% |
| Whirlpool Corp. | US:WHR | 24.6% | 11.7 | 33% | $178.88 | $163.57 | -9% |
| Williams-Sonoma Inc. | US:WSM | 24.5% | 14.4 | 23% | $89.56 | $98.47 | 10% |
| Masco Corp. | US:MAS | 23.1% | 20.5 | 74% | $58.54 | $64.43 | 10% |
| M.D.C. Holdings Inc. | US:MDC | 19.4% | 8.4 | 25% | $44.34 | $51.00 | 15% |
| Trane Technologies plc | US:TT | 18.0% | 28.2 | 43% | $120.30 | $116.00 | -4% |
| PulteGroup Inc. | US:PHM | 17.7% | 9.9 | 40% | $45.32 | $47.46 | 5% |
| Lennox International Inc. | US:LII | 17.6% | 29.8 | 12% | $284.69 | $233.15 | -18% |
| Aaon Inc. | US:AAON | 16.8% | 46.1 | 0% | $57.49 | $44.00 | -23% |
| Sherwin-Williams Co. | US:SHW | 16.6% | 28.2 | 52% | $675.91 | $680.14 | 1% |
| Forterra Inc. | US:FRTA | 16.6% | 13.7 | 40% | $13.48 | $16.00 | 19% |
| Helen of Troy Ltd. | US:HELE | 16.2% | 21.5 | 100% | $208.97 | $232.80 | 11% |
| Louisiana-Pacific Corp. | US:LPX | 16.1% | 12.1 | 50% | $33.89 | $36.13 | 7% |
| M/I Homes Inc. | US:MHO | 12.3% | 7.1 | 50% | $44.18 | $51.50 | 17% |
| Argan Inc. | US:AGX | 11.4% | 34.9 | 50% | $42.98 | $53.00 | 23% |
| TRI Pointe Group Inc | US:TPH | 11.2% | 8.8 | 50% | $17.33 | $19.79 | 14% |
| Taylor Morrison Home Corp. | US:TMHC | 11.1% | 8.4 | 75% | $24.29 | $27.88 | 15% |
| NVR Inc. | US:NVR | 10.5% | 17.6 | 40% | $4,207.18 | $4,497.50 | 7% |
| Toll Brothers Inc. | US:TOL | 9.9% | 10.9 | 28% | $42.96 | $45.75 | 6% |
| KB Home | US:KBH | 7.8% | 11.6 | 40% | $36.63 | $37.92 | 4% |
| Owens Corning | US:OC | 7.5% | 16.0 | 50% | $69.17 | $68.72 | -1% |
| A.O. Smith Corp. | US:AOS | 5.3% | 23.2 | 33% | $49.36 | $50.14 | 2% |
| Beacon Roofing Supply Inc. | US:BECN | 4.8% | 16.6 | 24% | $33.52 | $33.08 | -1% |
| Johnson Controls International plc | US:JCI | 3.0% | 17.2 | 64% | $41.30 | $45.06 | 9% |
| Quanex Building Products Corp. | US:NX | 0.1% | 30.0 | 67% | $16.85 | $18.33 | 9% |
| Cavco Industries Inc. | US:CVCO | -0.7% | 26.8 | 33% | $193.96 | $216.00 | 11% |
| Tempur Sealy International Inc | US:TPX | -1.0% | 14.5 | 70% | $86.19 | $103.38 | 20% |
| Eagle Materials Inc. | US:EXP | -6.8% | 13.6 | 60% | $84.35 | $90.88 | 8% |
| Skyline Champion Corp. | US:SKY | -7.7% | 27.8 | 67% | $29.26 | $32.00 | 9% |
| Jeld-Wen Holding Inc. | US:JELD | -8.2% | 13.8 | 17% | $21.49 | $22.25 | 4% |
| Aecom | US:ACM | -9.0% | 15.4 | 80% | $39.23 | $46.44 | 18% |
| Beazer Homes USA Inc. | US:BZH | -10.6% | 12.0 | 0% | $12.63 | $11.00 | -13% |
| Valmont Industries Inc. | US:VMI | -13.5% | #N/A | 40% | $128.50 | $139.33 | 8% |
| American Woodmark Corp. | US:AMWD | -13.8% | 13.2 | 40% | $90.07 | $98.25 | 9% |
| Great Lakes Dredge & Dock Corp. | US:GLDD | -15.8% | 11.9 | 100% | $9.54 | $15.18 | 59% |
| Southwest Gas Holdings Inc. | US:SWX | -15.9% | 14.3 | 43% | $62.39 | $77.14 | 24% |
| Allegion PLC | US:ALLE | -16.0% | 23.9 | 0% | $104.00 | $104.25 | 0% |
| Leggett & Platt Inc. | US:LEG | -16.3% | 17.5 | 25% | $41.49 | $41.00 | -1% |
| Armstrong World Industries Inc. | US:AWI | -18.4% | 20.9 | 40% | $76.09 | $78.13 | 3% |
| Ethan Allen Interiors Inc. | US:ETH | -21.4% | 27.5 | 0% | $14.50 | $14.00 | -3% |
| Martin Marietta Materials Inc. | US:MLM | -25.5% | 20.8 | 53% | $207.32 | $244.84 | 18% |
| MasTec Inc. | US:MTZ | -27.3% | 9.2 | 100% | $46.66 | $54.82 | 17% |
| Mohawk Industries Inc. | US:MHK | -29.4% | 11.8 | 31% | $96.33 | $92.93 | -4% |
| Summit Materials Inc. Class A | US:SUM | -35.2% | 18.7 | 76% | $15.49 | $21.78 | 41% |
| Carrier Global Corp. | US:CARR | N/A | 19.5 | 38% | $30.30 | $28.70 | -5% |
| Source: FactSet | |||||||
Click on the tickers for more about each stock, including the companies’ business profiles.
As always, if you are considering direct investments in any of the stocks listed here, you need to do your own homework to form an opinion of how well you expect the company to perform over the next several years.
You can see that many of the best performers have gotten well ahead of the consensus price targets. Then again, there are 25 with majority “buy” ratings, and many are still expected by analysts to should double-digit gains over the next 12 months.
