Wells Fargo & Co (WFC), Standard Pacific Corp. (SPF): Three Ways to Play the Housing Recovery

Page 1 of 2

Fed’s aggressive bond buying is showing some results as the U.S. housing markets begin their recovery. Amid this recovery, I have shortlisted some companies that have significant exposure to the U.S. housing market. I believe these companies are poised to benefit from the housing recovery. Therefore, these stocks are the best way to play the U.S. housing recovery.

Wells Fargo & Co (NYSE:WFC)

The rebounding housing market

U.S. housing is showing signs of a recovery. The Case-Shiller Home Price Index (composite 20) has increased from 146.5 at the beginning of the year to 149.8. This index is a national price index for 20 cities.

The Wall Street Journal reports that home prices climbed the highest in the metropolitan areas in more than seven years. Much of the hike in prices is due to a tight supply of housing. This is why the supply and demand balance is clearly inclined towards the sellers in a large proportion of the country.

Further, the housing market is being well supported by the low mortgage rates, and this has created ample buying power for home buyers. The average 30-year fixed mortgage rate has touched 3.51%, while the average 15-year fixed mortgage rate has plunged to as low as 2.69%. These record low mortgage rates have made housing more affordable.

Much of the decline in the mortgage rates is a result of the Fed’s record stimulus efforts. Continued efforts by the Fed to buy Agency residential mortgage backed securities would mean further support to the U.S. housing markets. Therefore, U.S. financial companies with significant exposure to the U.S. housing markets should experience growth.

Largest housing lender with a diversified asset base

Wells Fargo & Co (NYSE:WFC) is considered to be the largest mortgage lender in the U.S. It once originated one in every three home loans. While its market share has gone down slightly, I believe it is still poised to benefit from the recovering housing markets as it regains its market share as the top mortgage originator and shows tremendous growth in its mortgage banking unit.

Over the past three years, the bank has reported record profits including an $18.9 billion profit for the full-year 2012, supported by the housing recovery. Warren Buffett recognizes the potential in the bank’s growth due to the recovering U.S. housing markets, which is why Wells Fargo & Co (NYSE:WFC) remains his favorite financial stock. Buffett is the largest shareholder of Wells Fargo & Co (NYSE:WFC).

The diversified business model of the bank enables it to benefit from the prevailing interest rates. Investors were concerned that the bank will be stuck with loans and other assets that might lose value faster than the liabilities. However, the concerns were brushed aside by the bank’s CFO who said Wells Fargo & Co (NYSE:WFC) will benefit from higher rates. This is because management has constructed a portfolio in a way that Wells Fargo & Co (NYSE:WFC)’s liabilities will lose value faster than its assets causing the bank to make higher returns.

Going forward, the bank will continue to benefit from a talented management team, a diverse business model, and a retail deposit base that helps drive the highest net interest rate margin. The retail deposit base is both cheaper compared to bond funding and also more stable.

Growth from California

Standard Pacific Corp. (NYSE:SPF) is a California-based homebuilding and financial services company with operations largely in California, Florida, Arizona, and Texas regions. Within the homebuilding business segment, the company constructs and sells single-family homes, while the financial services business segment provides mortgage financing to its home buyers.

In the latest SEC filings, the company reported enough inventories to meet 5.6 years of demand at the current pace. Besides, the company anticipates strong growth in new orders and total backlog and should grow at a fairly rapid pace as the markets continue to rebound.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!