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
blog comments powered by Disqus
Insider Monkey Headlines
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

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!