Daily Gains Letter

Lumber Sales Forecasting Stronger Housing Market?

By for Daily Gains Letter |

Lumber Sales Forecasting Stronger Housing Market?Reflecting the strength in the U.S. housing market, Weyerhaeuser Company (NYSE/WY) reported very good financial results in its first quarter.

The company’s 2013 first-quarter revenues leapt to $1.95 billion, way up from $1.49 billion in the same quarter last year, on solid demand from all its business lines.

Net earnings grew significantly to $144 million, way up from earnings of $41.0 million in the same quarter last year.

On the stock market, Weyerhaeuser is expensively priced, but it certainly is great to see this mature company reporting solid business growth.

Stocks related to the U.S. housing market have been on a tear for the last couple of years, but it is very much a sector that is chock-full of risk.

It is not a group of companies on the stock market that a conservative investor would want to use while saving for retirement.

The Home Depot, Inc. (NYSE/HD) is a component company in the Dow Jones Industrial Average and has been a powerhouse wealth creator recently.

On the stock market, Home Depot has doubled over the last 18 months, which is pretty spectacular for such a mature, large-cap company.

It is a reflection, however, of the enthusiasm that institutional investors have for the U.S. housing market and the resurgence that it is now experiencing.

Of course, there is no runaway bull market in housing, but the action in the stock market reflects a recovering housing market, as does the fact that earnings from housing-related companies are going up.

D.R. Horton, Inc. (NYSE/DHI) reported excellent growth in its latest quarterly revenues of $1.4 billion, up a spectacular 49%.

The company’s earnings grew 173% to $111 million, and management forecast robust demand ahead along with rising prices, which should definitely boost margins.

To be fair, the U.S. housing market has been in the doldrums for quite some time, and comparable figures can be exaggerated—but it is still great to see growth in earnings, the stock market, and orders for new homes.

There is consistency on the stock market among homebuilders and their forecasts for the rest of the year. The majority are predicting better business conditions, earnings growth, and rising prices.

The one area among the group that is a bit of a concern is the cost of raw materials. If business is stronger for Weyerhaeuser, then it obviously translates to higher costs for homebuilders.

Regardless, both the strength in earnings and the performance of homebuilders on the stock market are a significant boost to confidence.

There is still a glut of resale homes in the marketplace, but the data on housing prices in many jurisdictions has turned higher.

Earnings strength for homebuilders has continued momentum over the coming quarters. Many of these stocks have become fully priced on the stock market, but deservedly so.

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