Property stocks looking expensive? Try these 4

Chris Stott, Chief Investment Officer at Wilson Asset Management, stated in a recent interview that the Small Industrials Index is trading on a price-to-earnings ratio of 18, which is a similar level to where it was at the top of the market in May 2007 before the GFC brought everything unstuck.

Eighteen times earnings is a lofty multiple that is really only justified if investors expect solid earnings growth. Mr Stott aired his concern that earnings amongst the small industrials appear to still be in a downgrade mode, which makes the outlook for 2014 somewhat murky.

With the market looking fully priced and the outlook for earnings growth amongst many firms not strong, Mr Stott singled out the housing market as one of the few sectors where opportunities are still presenting themselves. He identified four stocks of interest.

1. Brickworks (ASX: BKW) has three divisions: building products, property and investment. The building products division is one of Australia’s largest makers of bricks, pavers, roof tiles and flooring.

2. CSR (ASX: CSR) has extensive building products and glass divisions, which cater to many stages of the home building process including bricks and pavers, insulation, plasterboard, roof tiles and glass windows.

3. Sunland (ASX: SDG) is a property developer with operations in Queensland, New South Wales and Victoria. The company focuses on residential developments but also does multi-storey projects as well.

4. Villaworld (ASX: VLW) is also a property developer with a focus on the Queensland market but also with projects in NSW and Victoria. The company offers house and land packages, as well as townhouses and just land. 

Foolish takeaway

The housing market looks to be gaining traction after a long period of under-building. The above four stocks are all well placed to benefit and could offer investors an opportunity to join in further upside at the sector expands off its lows.

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Motley Fool contributor Tim McArthur owns shares in CSR Ltd.

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