3 Creative Stock Picks to Play the Real Estate Rebound
The housing market has bounced back in a major way, but investors shouldn't feel as if they're limited to homebuilder stocks or high-yielding real estate investment trusts to find a way to cash in on the recovery. There are plenty of ways to play the resilient housing market with companies that may continue to benefit even after the inevitable spike in interest rates cools the market down.
Let's go over a few of the thinking investor's ways to play the real estate rebound.
Zillow (Z)
When it comes to real estate websites, it's hard to top Zillow. The leading portal provides housing and neighborhood information, and turned it heads when it disrupted the industry by offering rough valuation appraisals of homes in most major markets.
Zillow managed to grow during the market's downturn, and now it's pressing hard on the accelerator. Zillow posted another blowout quarter last week. Revenue soared 70 percent to a record $66.2 million, making this 14 consecutive quarters in which its top line has grown by 67 percent or better.
Zillow averaged a record 70.7 million unique monthly visitors to its website and mobile apps during the quarter, and that trend improved to 77 million unique users in March and 79 million in April.
Why will Zillow continue to move up after housing cools down? Zillow already thrived during the initial market collapse, and things should be even better now. Real estate brokers pay Zillow for enhanced access, and a slumping housing market will likely convince more brokers to pay up to drum up new leads.
Netflix (NFLX)
CNBC's Jim Cramer once referred to Netflix as a stealth housing play, and he's absolutely right. As more people buy homes, paying $7.99 a month -- or $8.99 a month for new subscribers -- is an affordable way to provide in-home entertainment. Taking on a new mortgage is a budget stretcher, and many new home buyers find themselves staying home instead of heading out for entertainment to save some money.
Netflix closed out its March quarter with 48.35 million global subscribers to its flagship streaming service, tacking on 4 million net new accounts during the first three months of the year.
Why will Netflix continue to move up after housing cools down? Netflix's value as a service made it one of the few consumer growth stocks to thrive during the recession, and it continues to become a better value as it adds to its growing content catalog. Aggressive international expansion should help also help offset any potential though unlikely stateside weakness.
Lumber Liquidators (LL)
Several home improvement specialists have reported quarterly results this month. The recurring theme through reports out of hardwood flooring retailer Lumber Liquidators, wood-alternative decking specialist Trex (TREX) and specialty tile retailer Tile Shop Holdings (TTS) is that the rough January snowstorms held back sales. However, all three companies see the sales that they missed out on earlier this year starting to materialize now.
%VIRTUAL-article-sponsoredlinks%Lumber Liquidators still held up reasonably well. Net sales climbed 7 percent as expansion helped offset a modest 0.6 percent slide in comparable store sales. Despite the soft quarter, Lumber Liquidators stuck to its full year guidance calling for a profit of $3.25 a share to $3.60 a share on $1.15 billion to $1.2 billion in net sales.
Why will Lumber Liquidators continue to move up after housing cools down? Replacing a home's flooring with stylish hardwood is a popular home improvement move, and that will continue even if real estate values stabilize and mortgage rates head higher. The housing rally helped boost the value of properties where homeowners no longer owe more than the properties are worth, and that will make them more comfortable with investing in permanent home improvement projects.
Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns Lumber Liquidators, Netflix, Tile Shop Holdings, Trex, and Zillow. Try any of our newsletter services free for 30 days.
