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Why Woolworths, Stockland and Toll Holdings will set new highs

When you get turns in the market, you have to look past the current gloom that many talk about, and see where things are going. Investors have to think a couple steps ahead because the stock market is already doing that. So instead of anchoring on what has already happened, it’s important to focus on what’s next.

Woolworths (ASX: WOW) is a perennial grower, similar to Wesfarmers (ASX: WES), but the season for picking up some Woolworths shares is now because with an improving economy and a housing boom expected, new home developments will create new communities that that need to shop, and the company positions itself to according to population growth trends.

Right now, it is close to breaking through its all-time high of $36.10. This is significant because in 2000 and 2004 when it finally went up past a previous multi-year high, the share price kept going until it set another high that would stay that way for three to four years.

It is during those times of break-outs that investors really made money off this slow grower. Because of its size and scale, the company now grows roughly at the pace of GDP and population growth. It takes time to build up to the next level, but when it gets there, it moves steadily to the next plateau.

Housing developer Stockland (ASX: SGP) is also going to benefit from increased housing demand in a market where supply is slow and under long-term building averages. To make homes more affordable, it is making lot sizes smaller so that the land price component of the total is less. They still have to build the house, so their construction isn’t cut down.

More lot sizes are down around 450 sqm from the standard 600 sqm that was popular a decade ago. That 25% reduction in size means more lots to sell on the same area of land. Other house builders like AV Jennings (ASX: AVJ) and Devine (ASX: DVN) will benefit, too, but Stockland is on a larger scale, so it can muster its business forces together better for a housing boom when it truly comes.

It is within striking distance of its mid-term share price high of $4.17, which interestingly was about the price level it broke through in 2001 when the previous housing boom was taking off.

Finally, transport and logistics leader Toll Holdings (ASX: TOL) has been lying low in share price, trading in a range since March 2011. If you follow the thinking that if consumer spending rises, then more goods have to be shipped, this company will definitely be a beneficiary of that.

It has the largest market share for road transport according to IBISWorld, and with its port facilities and ties with Asciano (ASX: AIO), the second largest rail transport company which was spun off from Toll Holdings, it has a hand in all the major logistics areas.

Currently trading just below its $6.00 share price resistance level, when it finally breaks through, it could rise to $7 or $8 in a relatively short time.

Foolish takeaway

Think like a general who has to create a master strategy, looking out over the areas that he must move through. These three companies have the power and resources to break through their lines of resistance, so you need to weigh your risks and rewards, and act now to take up the best positions.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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