Following the upward trends seen in housing finance and building approvals, the Housing Industry Association's New Home Sales Report said that from its survey of the largest volume builders, the December figures show that 2013 was the first full year new homes totals increased throughout the year.
Most of 2012 was trailing down from the 2011 highs, but the trend reversed. Lower interest rates aided this rise, and the stories about Sydney house price climbs was news for most of 2013.
December's data showed a slight 0.4% decrease in seasonally adjusted home sales, but the December quarter figures rose by 6.3%. Detached house sales for the quarter saw the biggest jump up in SA with a 22.5% increase. Second was WA with 7.3%, followed by 5.8% in NSW and QLD with 1.5%. Victoria declined by 9.5%.
Investors who have been following this story know that you can watch three sets of stocks to take advantage of this cyclical uptrend.
Builders/developers
Stockland Corporation Ltd (ASX: SGP)
Australand Property Group (ASX: ALZ)
Mirvac Group (ASX: MGR)
Lend Lease Group (ASX: LLC)
Of these, I favour Lend Lease because of its combination of low long-term debt to NPAT ratio, steady earnings growth over the past four years, and its mix of housing and commercial development. It's also expanding into the US where the housing market is getting back to normal.
Building materials
CSR Limited (ASX: CSR)
Boral Limited (ASX: BLD)
Fletcher Building Limited (ASX: FBU)
Reece Australia Limited (ASX: REH)
James Hardie Industries plc (ASX: JHX)
Reece had the highest net profit margin and return on equity of these, and since these are cyclical stocks, I again favour Reece because it returned the highest 10-year total shareholder return of an average annual 18.46%. No long-term debt and stable earnings growth over a long period of time suits me as well.
Home furnishings / household goods
JB Hi-Fi Limited (ASX: JBH)
Harvey Norman Holdings Limited (ASX: HVN)
Nick Scali Limited (ASX: NCK)
Dick Smith Holdings Ltd (ASX: DSH)
This group is in some ways more difficult because of being retail businesses. Consumers have more choices between retailers, but if I had to choose quickly or be blocked from choosing at all, my hand would move toward Nick Scali.
Its price-to-book value is higher than the others, but so is the combination of high net profit margin and return on equity. It has low institutional investor percentage on its share registry (51% is owned by the Scali family) and its 2013 net profit is more than double its long-term debt.
Foolish takeaway
I can't predict which one of these will go up the fastest over the next year or so, but neither can anyone else. It's all about business performance, good management and having competitive advantages that protect what they have built up from rivals.
