|Written by GSCR Staff|
|Tuesday, 03 March 2015 06:35|
We seriously debated having dubbed audio of Morgan Freeman’s voice to our Goldman Guide, ‘March of the Millennials’, yesterday, but there were too many copyright infringements to worry about.
We would have really grabbed your attention no doubt. One of the major themes of our article was that this Generation Y appears to be breaking from the past as far as traditional goals and ambitions are concerned.
On Sunday CBS’ “60 Minutes” ran a special on Lumber Liquidators (NYSE – LL) and possible dangerous levels of formaldehyde in the firm’s Chinese manufacturing plants. This is right up the millennials alley when it comes to concern over the environment. LL got hammered dropping 25% in yesterday.
Two stocks that could benefit greatly in the short term from this are Home Depot (NYSE – HD - $116.12) and Lowe’s Companies, Inc. (NYSE – LOW - $75.09) which have already enjoyed 40% and 48% run ups over the last year. Both companies are projected have growth in revenue this year to justify this increase. A quick trade could be in order here either with a straight up buy or using options, particularly if you already own one of these.
This brings us the larger question at hand. As per our article yesterday, many millennials are delaying the ‘American Dream’ of owning a home due to several factors, including the housing bubble of last decade. Interest rates that are still very low have not been a big enough carat. If we look at SPDR Homebuilders ETF (NYSE – XHB - $36.40) as a proxy, these factors may be starting to affect the long term potential of the industry. XHB is up a nice 7% over the last year, but the S&P is up 13%. The industry is definitely lagging.
Where are we going with this? While the shift in home buying may be a market reality for millennials it could be either a delay or a transition to permanent rentals. In most major cities home building has picked up, but it is in apartment housing. There is still opportunity to make money here for sure. Picking the right stock is important.
We featured PGT, Inc. (NASDAQ – PGTI - $11.03) in May 2013 at an $8.87 price level. The beauty of this stock and Company is that they offer windows and doors that are specifically designed for high impact, high wind environments. So it does not matter if houses or apartments are the final destination for the products. The stock still looks great from a valuation perspective with a forward P/E of 13 versus the trailing 33 P/E. PGTI is a solid long term small cap play on housing and should get to $12 by the start of 4Q15.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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