Sherwin-Williams Company (SHW), D.R. Horton, Inc. (DHI): A Not-So-Obvious Play on Housing

Other ways to play the housing recovery: homebuilders

Another option for playing the housing recovery is the most obvious one: the homebuilders. Of these, D.R. Horton, Inc. (NYSE:DHI) is a good one to look at, especially since shares have pulled back nearly 15% lately. If the housing recovery continues as expected, D.R. Horton, Inc. (NYSE:DHI) could experience tremendous earnings growth over the next few years. The company is projected to report earnings of $1.21 this year, increasing to $1.70 and $2.29 in 2014 and 2015, respectively, for annual growth of 40% and 35%. While this seems incredible for a company with a P/E of 19.6, bear in mind that the growth projected in new home construction is far from a sure thing.

Yet another way: home improvement retailers

Home improvement retailers, such as The Home Depot, Inc. (NYSE:HD), are a great way to play an improving housing market without limiting your exposure to new construction. As the massive amounts of foreclosures and short sales are still working themselves out of the market, distressed properties are a big reason why the market is so hot. While these properties can be scooped up at a discount, virtually all need considerable work done. At least all of the foreclosures did when I was house-hunting last year!

At 24.3 times earnings, The Home Depot, Inc. (NYSE:HD) may look a bit expensive, but the company is projected to grow earnings at a 15% annual rate going forward. The Home Depot, Inc. (NYSE:HD) benefits from all three aspects of a hot housing market: supplies for new construction, renovation of existing “fixer-upper” homes, and homeowners who do improvements to their own homes to boost the value before attempting to sell.

Conclusion

Whichever way you choose to play the housing recovery, as long as things keep improving according to expectations, you should be alright with any of these. Sherwin-Williams is my favorite here because it is not just dependent on the U.S. housing market, but also to some emerging markets that would not necessarily slow down in the unlikely event of another U.S. recession.

The article A Not-So-Obvious Play on Housing originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Sherwin-Williams. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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