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5 stocks to gain from higher home building approvals

The outlook for 2014 housing construction is picking up, with the latest data showing the growth of new home building approvals. This month the Australia Bureau of Statistics (ABS) released the October building approvals figures, and the result was a continuation of the rise in the trend estimate by 1.9%.

Since early 2012 the trend has been signalling the housing market revival. With building approvals, it may take up to 6-12 months for houses to be completed, so expected revenues of residential house construction companies may come in 2014 or early 2015.

Unit building development can sometimes take longer to complete, yet the 4.5% increase in October’s trend estimate for building approvals of dwellings excluding houses gave some cheerful news to developers. Seasonally adjusted, the estimate fell 2.7%. For houses, the seasonally adjusted trend was down 0.3%.

Investors have already started pushing the share prices of real estate developers and home builders up. Stockland (ASX: SGP) has pulled back from a recent high of about $4.10, closing at $3.80. It just announced that is sees its FY 2014 expected earnings to be in line with previous guidance, looking towards a rise of 4%-6% per security growth.

Mirvac Group (ASX: MGR) recently announced at its AGM that in 2013 it was 1,800 residential lot settlements over its target, and for 2014 it is on track to deliver a 10% development return on invested capital. Its shares closed at $1.65.

House builder AV Jennings (ASX: AVJ) just hit a new yearly high of $0.67, settling back to $0.61. In the past 4 months, the outlook has steadily improved, and now the company is looking towards 1,200-1,400 contract signings for FY 2014, as opposed to the 819 it did achieve in 2013.

Also, investors  shouldn’t overlook building materials companies because they will undoubtedly benefit from rises in both house and unit construction.

James Hardie (ASX: JHX) shot up in share price, from about $10.80 to hit a new yearly high of $12.68, on news that it doubled its first half operating profit from about US$56.3 million in the previous corresponding period to US$108.3 million. The US housing market is well recovering from the GFC, so the company is benefiting from both countries’ housing upturn.

Brickworks (ASX: BKW) was calling for forecasted solid performance in 2014 after saying it is beginning to see a broad-based recovery in housing. It closed at $13.50. Its earnings before interest, tax, depreciation and amortisation recovered back up to $160.2 million in 2013, up from $132.1 million.

Foolish takeaway

More and more of the statistics and data are confirming the anecdotal evidence of the return of the housing market. Typically, housing boom cycles take a number of years to play out and hit their peak, but along the way there can be slow patches.

Keep up to date on the related company announcements and news, and follow the companies with the steadiest growth and low production costs. They have the best prospects to make the most out of revival.

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

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