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Plains Exploration & Production Company (PXP), Mcmoran Exploration Co (MMR): Housing Is Back! These Stocks Will Benefit from the Recovery

A recovery in housing won’t just drive big purchases like new sofas or dressers. Much smaller household essentials are also part of the equation, and Bed Bath & Beyond Inc. (NASDAQ:BBBY) is worthy of consideration on that basis. Towels, bedding, and other home goods have helped drive sales of the company up to nearly $10 billion in the past year. Solid top line growth has translated to the bottom line, but the stock remains attractively priced. The trailing twelve month free cash flow yield is around 7% and the stock trades at just 12 times next year’s earnings despite analyst expectations of 13% annual growth over the next five years.

When considering Bed Bath & Beyond Inc. (NASDAQ:BBBY), it is important to also understand the intense competitive environment that it operates within. This competition comes from department stores, discounters such as Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT), online retailers such as Amazon.com, Inc. (NASDAQ:AMZN), and even companies like Williams-Sonoma, Inc. (NYSE:WSM) with respect to many products. This competition can offer some combination of lower prices, larger selection, and higher quality, so understanding the competitive environment is a critical part of any invesmtent.

Which stocks to choose?

This article only discusses four of the multitude of companies poised to benefit from a housing recovery. Of this group, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) appears to have the most upside based on valuation, but also the greatest risk in terms of non-housing considerations such as commodity prices and acquisition integration. Plus, there is always risk of a strike or accident at a significant mine as well as government privatization, all of which can put an immediate halt to production.

For a safe bet that combines the upside of a housing recovery, a reasonable valuation, a solid dividend yield, and additional growth opportunities beyond domestic housing, Williams-Sonoma appears to be a great fit. Stay tuned for the second installment of this analysis, which will take a deeper dive into a few smaller companies that often go under the radar, but have significant housing-related opportunities.

Brian Shaw owns shares of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Amazon.com, Inc. (NASDAQ:AMZN). The Motley Fool recommends Amazon.com, Bed Bath & Beyond Inc. (NASDAQ:BBBY), and Williams-Sonoma, Inc. (NYSE:WSM). The Motley Fool owns shares of Amazon.com and Freeport-McMoRan Copper & Gold.

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