UPDATE: Here's an overlooked way to play the 'stuck-at-home' trend in the stock market

5:04 pm ET September 2, 2020 (MarketWatch) Print

By Philip van Doorn, MarketWatch

The dynamic housing market is offering investors opportunities outside of high-flying technology industries

As Americans have been forced to stay at home for work, school and even visits to the doctor, shares of cloud-services providers have soared. But there's something else going on that points to a long-term trend investors need to know about: a housing shortage outside cities, and a boom in home renovation and improvement.

It's understandable that at a time when people have to stay home that cloud-services providers such as Zoom Video Communications Inc. will soar. The stock is up 20% this month and 349% for 2020. The familiar FAANG stocks (plus Microsoft Corp. (MSFT)) have also surged this year:

Company Ticker Total return - 2020

Facebook Inc. Class A US:FB 43%

Apple Inc. US:AAPL 71%

Amazon.com Inc. US:AMZN 84%

Netflix Inc. US:NFLX 62%

Alphabet Inc. Class C US:GOOG 23%

Alphabet Inc. Class A US:GOOGL 22%

Microsoft Corp. US:MSFT 46%

Source: FactSet

But variety is the spice of life -- and an excellent tool to cut risk in your investment portfolio and avoid missing out on opportunities.

As people are stuck inside, they are also improving their homes. Others are trying to move away from cities, leading to incredibly strong markets for home sellers in suburbs and rural areas. That points to a housing shortage and good times for home builders (http://www.marketwatch.com/story/housing-starts-soar-226-in-july-as-americans-head-for-the-suburbs-in-search-of-larger-abodes-2020-08-18), suppliers to those builders and home-improvement retailers, including Home Depot Inc. (HD) and Lowe's Cos. (LOW).

Digging further, consider a company such as Pool Corp. (POOL), which bills itself as "the world's largest wholesale distributor of swimming pool supplies, equipment and related leisure products" and has well over 100,000 wholesale customers. This stock is up 57% this year.

It's easy to screen the broad indexes for home-builder stocks, but it is difficult to identify companies similar to Pool Corp. (POOL), because a company's industry listing may be something vague like "wholesale distributors" within the consumer discretionary sector.

Of course, an excellent way to play the home construction/renovation trend is through exchange traded funds that focus on appropriate industries. So we looked to three U.S. construction and home improvement-related ETFs, combined their holdings and removed their duplicates for a list of stocks.

Here are the three ETFs:

-- The iShares U.S. Home Construction ETF (ITB) holds shares of home builders and companies that supply them, including the large home-improvement chains. The portfolio is weighted by market capitalization.

-- The SPDR S&P Homebuilders ETF (XHB) holds an equal-weighted group of companies involved with home building and supplying builders.

-- The Invesco Dynamic Building & Construction ETF (PKB) holds 30 U.S. construction companies, and isn't focused only on home construction.

Here's how the three ETFs have performed this year:

Taking the three ETFs together and eliminating duplicate holdings, we are left with a group of 69 stocks, 42 of which have had double-digit returns this year.

So here's the entire list, sorted by how well the stocks have performed this year. This is a lot of data -- scroll the table to see all the information, which includes forward price-to-earnings ratios, percentage of "buy" ratings among sell-side analysts and 12-month price targets:

Company Ticker Total return - 2020 Forward P/E Share 'buy' ratings Closing price - Aug. 28 Consensus price target Implied 12-month upside potential

Lumber Liquidators Holdings Inc. US:LL 161.0% 28.9 20% $25.50 $22.00 -14%

Trex Co. Inc. US:TREX 66.2% 51.2 25% $149.39 $137.09 -8%

Meritage Homes Corp. US:MTH 61.8% 10.4 63% $98.90 $106.00 7%

LGI Homes Inc. US:LGIH 60.8% 11.4 20% $113.58 $119.50 5%

Tractor Supply Co. US:TSCO 58.7% 24.5 40% $146.91 $154.60 5%

Pool Corp. US:POOL 56.9% 41.8 50% $330.90 $321.67 -3%

TopBuild Corp. US:BLD 52.1% 22.0 90% $156.76 $163.30 4%

Floor & Decor Holdings Inc. Class A US:FND 44.2% 50.2 57% $73.26 $75.16 3%

Watsco Inc. US:WSO 40.9% 38.0 11% $246.35 $200.60 -19%

Lowe's Cos. Inc. US:LOW 40.2% 20.2 80% $165.51 $182.33 10%

SiteOne Landscape Supply Inc. US:SITE 39.4% 55.7 22% $126.34 $119.00 -6%

D.R. Horton Inc. US:DHI 37.4% 11.1 63% $71.84 $75.06 4%

Century Communities Inc. US:CCS 37.4% 8.6 33% $37.57 $43.17 15%

Lennar Corp. Class A US:LEN 37.0% 12.3 50% $75.93 $75.44 -1%

Lennar Corp. Class B US:LEN.B 35.3% 9.8 47% $59.92 $75.34 26%

Home Depot Inc. US:HD 32.8% 24.4 63% $286.29 $306.19 7%

Fortune Brands Home & Security Inc. US:FBHS 32.1% 21.0 29% $85.41 $82.77 -3%

Masonite International Corp. US:DOOR 28.5% 15.6 57% $92.78 $103.83 12%

Gibraltar Industries Inc. US:ROCK 28.4% 21.2 100% $64.78 $68.50 6%

Installed Building Products Inc. US:IBP 28.3% 19.0 67% $88.33 $101.27 15%

UFP Industries Inc. US:UFPI 28.2% 18.0 40% $60.82 $58.80 -3%

Quanta Services Inc. US:PWR 26.6% 13.3 100% $51.39 $54.38 6%

Simpson Manufacturing Co. Inc. US:SSD 26.2% 28.6 0% $100.62 $93.75 -7%

PGT Innovations Inc. US:PGTI 25.6% 17.0 40% $18.72 $20.88 12%

Builders FirstSource Inc. US:BLDR 24.6% 14.6 90% $31.67 $34.40 9%

Whirlpool Corp. US:WHR 24.6% 11.7 33% $178.88 $163.57 -9%

Williams-Sonoma Inc. US:WSM 24.5% 14.4 23% $89.56 $98.47 10%

Masco Corp. US:MAS 23.1% 20.5 74% $58.54 $64.43 10%

M.D.C. Holdings Inc. US:MDC 19.4% 8.4 25% $44.34 $51.00 15%

Trane Technologies plc US:TT 18.0% 28.2 43% $120.30 $116.00 -4%

PulteGroup Inc. US:PHM 17.7% 9.9 40% $45.32 $47.46 5%

Lennox International Inc. US:LII 17.6% 29.8 12% $284.69 $233.15 -18%

Aaon Inc. US:AAON 16.8% 46.1 0% $57.49 $44.00 -23%

Sherwin-Williams Co. US:SHW 16.6% 28.2 52% $675.91 $680.14 1%

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September 02, 2020 17:04 ET (21:04 GMT)