Can these 2 housing related stocks power your portfolio?

Rising building approvals point to higher building materials sales.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Recent housing trends have sent building materials companies share prices up as home prices rise in the capital cities. More buyers will be considering new houses or units, or building new houses as prices for existing homes grow out of reach. This increase is getting investors focused on building materials.

Building approvals data from the Australian Bureau of Statistics (ABS) showed that January was the thirteenth month of trend estimate increases, and for that month alone approvals were up 1.3%. The seasonally adjusted estimate for total dwellings climbed even higher by 6.8%. Houses rose stronger than units.

Approvals are a leading indicator, showing what will be constructed over the next 12-18 months. As construction proceeds, more building materials will be used and sales will rise.

James Hardie Industries plc (ASX: JHX) just released third quarter results for FY2014, they showed that for the nine months ending December 2013, it had a 12% sales rise on the pcp. Net operating profit for the nine months increased 39% to US$152 million. Investors bought up the shares to a new all-time high of $15.06.

The recovery of the US housing market is boosting earnings, where about 70% of its 2013 revenue came from. Australian housing construction growth should benefit the fibre cement maker, whose products such as HardiePlank and HardiePanel are used for siding, walls and paneling.

Boral Limited (ASX: BLD), maker of cement, drywall, and other building materials, also set a new 52-week high of $5.66 last week. At the end of February, it reported that its creation of a new joint venture (JV) with USG Corporation, the largest drywall producer in the US, was finalised.

The JV agreement entailed the sharing of assets in Australia, Asia and the Middle East, and as a consideration for USG's 50% ownership, it paid Boral US$500 million. In 2013, revenue from Asia and the US was about 11% for each. Joining up with a major US producer will help expand its international footprint.

Foolish takeaway

The housing market started taking off in 2012, so we are a little more than a year into the current trend. As long as interest rates stay relatively low and housing demand is rising, we may see several more years of housing growth.

I believe these two stocks can go further, with leading indicators like building approvals pointing the way to more construction and future earnings growth.

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »