How's this for an alarming headline? "Housing ETF Plummets On Negative Home Sale News." It certainly got my attention when I ran across Tom Lydon's article at seekingalpha.com.
The pedant in me first wondered whether the word "On" should have been capitalized. But then my inner investor stepped in, and I pondered whether this kind of development might spell opportunity rather than trouble.
As the article explained, the SPDR S&P Homebuilders ETF
Some will tell you that in the face of an inevitable downswing in the housing market, we should all steer clear of housing-related investments. Well, maybe. Here are some other things to keep in mind, though:
- For starters, the downswing in housing isn't unilateral. As Mr. Lydon himself noted, "Home prices were up in 97 of the 149 metropolitan areas surveyed compared with the sales prices last year."
- When home sales slip, that won't necessarily mean doom for all housing-related stocks. People might put off buying or selling a home during some periods, but they may instead spend that time remodeling their current home. This can mean extra revenue for firms such as Home Depot
(NYSE:HD)or Lowe's (NYSE:LOW).
- Some industries, like housing, are cyclical. An effective way to make money in them is to buy when they're down and sell when they're up. We seem to be in a down phase, though it could go lower over the coming months or years. This can be a good time to at least keep an eye on the sector, looking for a promising time to jump in.
Of course, there's no disputing that the SPDR S&P Homebuilders ETF is indeed down. It traded around $40 per share back in January, and was recently trading around $25 per share.
Still, it has some characteristics to recommend it. For one thing, it's rather concentrated -- into about 21 holdings. That means it hasn't spread its assets into several hundred stocks, as some funds do, diluting the power of each. Its annual turnover is low at roughly 20%. Its top holdings recently included Sherwin-Williams
Still, don't go rushing out and buying shares of any such company without doing considerably more investigation. Remember to invest your precious dollars only in your best ideas -- not just any reasonably attractive idea that happens along.
Meanwhile, I encourage you to learn much more about ETFs in our ETF Center. It features info on how ETFs stack up against mutual funds, how to develop an investment strategy with ETFs, pitfalls to avoid, and how to avoid ETF imposters.
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Longtime Fool contributor Selena Maranjian owns shares of Home Depot. Home Depot is a Motley Fool Inside Value recommendation. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.