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

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

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

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

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

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!