The Best Way to Play the Housing Rebound

Assuming the housing market is beginning to slow, which stocks are best positioned to continue growing?

May 16, 2014 at 2:54PM

As one of the largest manufacturers of home appliances in the U.S., Whirlpool (NYSE:WHR) is highly correlated to the housing market. Its broad portfolio covers laundry appliances, refrigerators and freezers, and cooking appliances. Key brands include Whirlpool, Maytag, and KitchenAid.

Shares of Whirlpool have outpaced the S&P 500 by more than 100 percentage points during the last five years. On top of that its dividend yield is only 2%, but its buyback program is robust. Last month it announced a $500 million buyback program--this is slightly more than 4% of its shares outstanding.

Toward the end of April, Whirlpool posted earnings of $2.20 a share--that's nearly 12% above what the company posted in the same quarter last year. But its earnings per share came in 5% below consensus. The company reaffirmed its outlook for fiscal 2014 EPS of $12 to $12.50. Wall Street's consensus estimate is for 2014 EPS to come in at $12.35, which would be 23% growth from 2013. That's pretty impressive, considering 2013 was a record year of earnings for the company.

A strengthening domestic market and international expansion drive growth
More than 65% of the company's operating income comes from North America, but it's looking to change that. Its focus is currently on Latin America and Asia. And when Europe starts to rebound from its longtime recession, it'll be a big positive for Whirlpool, since about 10% of its revenue is derived from Europe.

It's also revamping the manufacturing process by repositioning its manufacturing plants to locations closer to vendors and sales outlets. At year-end 2013 it relocated its commercial front-load washing machine manufacturing plant from Mexico to Ohio. That's a big positive considering more than 90% of its commercial front-load washing machines are sold in the U.S.

Also on the homefront, the demand in the U.S. is increasing thanks to an improving economy. The company is also seeing the benefits of young adults moving out of their parents' houses.

Other ways to play the housing market
Bed Bath & Beyond (NASDAQ:BBBY) is another very attractive stock that's leveraged to the housing market. It is currently down more than 23% year to date because last month Bed Bath & Beyond posted earnings of $1.60 a share. That was in line with consensus but still 5% below earnings in the same period last year. What's more is that comparable-store sales were up only 1.7% compared to growth of 2.5% in the same quarter last year.

The biggest opportunity is for Bed Bath & Beyond to catch up to the "big boys" when it comes to store count. Bed Bath & Beyond is expected to add 30 stores in fiscal 2015 (it currently has slightly more than 1,000 stores). That's still well below the 4,700 stores that Wal-Mart has in the U.S. The company believes the domestic market can handle 1,300 stores. There's also the opportunity to expand into Canada, where it still has fewer than 40 stores.

Another notable play on the housing market is Williams-Sonoma (NYSE:WSM). Williams-Sonoma was the most affected of the three stocks listed here. Shoppers were trading down from Williams-Sonoma's high-end brand during the weak housing market, which is why shares traded below $5 per share back in 2008.

Williams-Sonoma is less focused on store growth and more focused on direct to consumer. It has been increasing its investment in e-commerce over the years. Its direct-to-consumer business is expected to account for more than 50% of total sales by fiscal 2016. The web already accounts for more than 45% of total sales. The key for getting web sales up is the international markets. Last year, it started operating full-scale websites abroad. It'll continue this expansion this year, with an initial focus on English-speaking countries.

How shares stack up
Whirlpool trades at a P/E ratio of 10.3 based on next year's earnings estimates--that's the lowest P/E of the three stocks mentioned here. Factoring in analysts' growth expectations, its P/E-to-growth (PEG) ratio is 0.6. Williams-Sonoma's forward P/E is 17, but its PEG ratio is 1.5. Williams-Sonoma has a dividend yield that's similar to Whirlpool, coming in at 2.1%. Bed Bath & Beyond also has a relatively low forward P/E ratio of 11.2. Its PEG ratio still far surpasses Whirlpool's at 1.3. But it doesn't pay a dividend.

Bottom line
The housing rebound is slowing, but the three stocks above still have a few growth opportunities. Whirlpool is turning to international expansion, Bed Bath & Beyond is growing its store count, and Williams-Sonoma is focusing on e-commerce. However, Whirlpool is the cheapest of the three and a solid growth-at-a-reasonable-price opportunity. For investors looking to play the remaining rebound in the housing market while also gaining exposure to the fast-growing emerging markets, Whirlpool is worth a closer look.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!


Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers