Bringing Down the House
Nov 12th, 2008 | By Jonas Elmerraji | Category: Housing, Investing Strategies, Penny stocksWhile most investors look for industries they expect to boom in the future, there’s a solid investment case to be made for buying stocks in bad industries.
Jeremy Siegel, one of Wall Street’s best investment minds, said that, “Some of the most successful investments of the last thirty years have come from industries whose performances have been utterly horrendous.”
And if ever there was a horrendous market, housing’s it. The housing industry has sunk almost 40% this year, sending most investors heading for the hills…but not all…
There’s a niche in the housing market that’s actually been doing quite well over the last month, returning 36.4% when the S&P was fighting off some of the worst losses in history.
Putting the Fab in Prefab
Prefab manufactured housing has been making a comeback in spades. The industry has been growing at a steady clip for one obvious reason: in today’s credit crunched economy, people are looking for low-cost means to home ownership.
Prefab manufactured housing is the sector of the housing market that includes things like trailers and RVs, as well as higher end modular homes that are built off-site and put together at the construction site. The beauty of these kinds of homes is the low purchase cost for consumers.
Because prefab homes are so much less expensive to build in a factory setting than a traditional home at a construction site, they’re becoming a welcome alternative for those who don’t have the money to pony up for a custom-built home.
And why shouldn’t consumers love prefab homes? From a quality standpoint, there’s almost no difference between a completed prefab home and a custom-built one. According to an article in BusinessWeek, “Thanks to style-conscious architects, today’s manufactured houses prove you can combine low cost and high design — and they’re selling well.”
Many people see the prefab world as the future of the housing industry — imagine, putting up a home in 2-4 weeks at a fraction of the cost of building from scratch. The trend’s an impressive one…
Like most, I grew up familiar with traditional construction. You can imagine what a surprise it was then to find that back in my home town, a new house had been constructed in just a couple of weeks in the neighborhood my parents live in. “It’s one of those modular homes,” explained my father when he noticed the confusion on my face as we drove by.
The most impressive part about the modular home phenomenon is the fact that these houses don’t look any different from any other house you’ve ever seen. They don’t feature any fewer amenities. But they do have marked advantages. Sounds like a stock play to me…
Prefab Performance
Prefab homes are a small niche with only a handful of stocks. But just look at the numbers, and there’s no question about the potency of prefab. 83% of companies in the industry saw returns in the last four weeks — almost half of which were in the double digits.
Skyline Corp (SKY: NYSE) and Champion Enterprises (CHB: NYSE) are a couple of examples of small-cap prefab home companies that saw nice returns in September. In fact, small-caps rule the roost in the prefab arena…most companies have market caps between $33M and $450M, making them an interesting play for penny stock investors.
As prefab homes catch more and more attention from real estate developers and consumers, you can bet that this trend will keep going strong.
Cheers,
Jonas Elmerraji
November 12, 2008
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