The Home Depot, Inc. (HD), Sherwin-Williams Company (SHW), PulteGroup, Inc. (PHM): Which Housing Stock Is Right for You?

Value Line also looks favorably on Lennar Corporation (NYSE:LEN) thanks to more than nine years of land supply, and again, I would agree.  Lennar Corporation (NYSE:LEN) is also focusing on margins by reducing the number of floor plan offerings and streamlining efficiency. This is part of the home run potential–superb top line growth and margin expansion. It is a recipe for big stock moves, and it will need to continue for shares to beat already lofty expectations. Lennar ended 2012 with operating margins of 11% compared to a peak of 15% in 2005. By owning a vast supply of land, the company is able to achieve this operating margin expansion as both house prices and volumes rise without the cost of the land going up. I would expect margins and earnings to expand notably in coming years.

The Foolish Bottom Line

The homebuilding industry is poised to continue its outperformance. We are likely less than half-way through the current cycle that could very well see continued upside in most home-related stocks. Still, investors shouldn’t be blind to the risks and only invest in stocks that are suitable to their investing style. The Home Depot, Inc. (NYSE:HD) and Sherwin-Williams Company (NYSE:SHW) are core holdings, whereas homebuilders should be handled only by the more aggressive investing types. Homebuilders aren’t buy and hold names, so if that is your style then favor the balance sheet kings and don’t get too greedy.

Justin Carley has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Sherwin-Williams.

The article Which Housing Stock Is Right for You? originally appeared on Fool.com and is written by Justin Carley.

Justin 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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