Let me ask a simple question. Would you like to buy into one of
the biggest sectors of the U.S. economy at 20 year lows?
I would. Housing typically contributes well in excess of 10
percent of U.S. total production, and home equity tends to be the
largest part of a household's net worth. Now, home values are down,
households have less equity, and homebuilders see a dim, but
The National Association of Home Builders (NAHB)/Wells Fargo
housing market index (HMI) hit a high of 78 in December of 1998 and
managed to stay largely above 70 for the entirety of 1999, but it's
been all downhill from there. The following chart shows the HMI
index in blue - note that the scale for this metric is on the left
The index is a compilation of three components - sales
expectations, traffic of prospective buyers, and current sales
conditions. In October, all three rose. The takeaway message is
that builders are becoming more confident about the future of their
industry - although only marginally so.
The last time the index was at such depressed levels was in the
beginning of 1991 - almost 20 years ago.
Beaten down, battered, and at multi-decade lows. When would
there be a better time to start increasing exposure?
***This type of situation is exactly what contrarian investors
look for. They avoid the 'hot' sectors, and the high-flying stocks.
Nothing seems to make investors forget about risk like a stock that
is on a one way trip to the moon. But those rides never last
Stocks that seem to carry higher risk - like a stock with
exposure to the housing sector that I picked up a few months ago -
can actually have
risk than flavor of the month stocks. That's because when you hit
rock bottom, there's only one direction left to go.
When it appeared that the American automobile industry was dead
in early 2009
was an unpopular investment. Shares sank below $2. But a year and a
half later the automobile industry has staged a moderate recovery -
and shares of Ford have risen over 900 percent to surpass $18 per
Right now housing and construction is a sector of the economy
that is in even worse shape than the U.S. automobile industry. In
fact, this sector is widely believed to have caused the worst
recession since the 1930's.
Yet construction spending is increasing, and housing is as
affordable as it's been in decades.
I love shopping in the discount isle - where everything is going
for fire-sale prices and the bad news is already priced in.
I'm going to be honest with you - things can always get worse.
So while I'm recommending this contrarian investment in the housing
and construction industry, it's not for everybody.
But that's what a contrarian investment is all about. Be greedy
when others are fearful.
That said - we're not walking into this investment without a
plan. I believe the stock's upside potential far outweighs the
downside risk at this point. Soon more investors will realize that
this company isn't completely dependent on a housing recovery.
Instead, growth will come from selling energy technology and adding
value to low cost energy sources like coal.
If you're comfortable being greedy when others are fearful than
I encourage you to
to try a trial subscription to
Small Cap Investor PRO
and read my research report on this stock.
Subscribers are already up more than 40 percent on this
investment - but I believe shares could double in the next 12
months as the economy continues to improve.