Tuesday February 21, 2012
by Steve Mauzy, contributing editor Daily ProfitAs a contrarian, I'm interested in housing, as pessimism always creates opportunities. And the time to invest is when the market is near a bottom, which I believe is the case today.
There are a number of options for investing in the recovery. You can invest directly in home builder stocks; you can invest in the stock of companies that cater to home builders and homeowners, such
Owens-Corning (
OC) or
Home Depot (
HD).
Or, you can take both routes by investing in a diversified ETF such as
SPDR S&P Homebuilders (
XHB) or
iShares Dow Jones U.S. Home Construction (
ITB).
We also have one income position that we consider a play in housing that many investors are likely to overlook. I'm speaking of
Plum Creek Timber (
PCL), the largest timberland owner in the United States, which yields 4.3%.
You see, timber demand and timber prices are closely tied to housing construction. An average new home contains more than 14,000 board feet of lumber.
At the the peak of the housing bubble, starts were running at 2.3 million units annually. Board-feet of lumber for residential construction peaked at 28.6 billion in 2005, and plummeted to 6.5 billion board-feet by 2009.
Increased residential construction means increased lumber demand. As housing recovers and lumber demand increases, I expect Plum Creek Timber's share price and payouts to shareholders to increase as well.
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