Homebuilding Sector: Time to Buy or Sell?

News alert: The American public’s love affair with housing market has been rekindled. Although it may be difficult to accept, the very same properties they hated from 2008-09 are now increasing in value.

The latest S&P/Case-Shiller Home Price Indices – a popular yardstick of nationwide U.S. home prices - showed increases of 2.5% and 2.4% for the 10- and 20-City Composites in May 2013 compared to April 2012.

To further understand the velocity of the run-up in property values, not one of the 20 cities posted a loss over the past year. Furthermore, cities like Dallas and Denver have now surpassed their pre-financial crisis peaks established in June 2007 and August 2006!

David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, noted: “The Southwest and the West saw the strongest year-over-year gains as San Francisco home prices rose 24.5% followed by Las Vegas (+23.3%) and Phoenix (+20.6%). New York (+3.3%), Cleveland (+3.4%) and Washington DC (+6.5%) were the weakest. Monthly numbers before seasonal adjustment showed all 20 cities experienced rising prices. San Francisco (+4.3%), Chicago (+3.7%) and Atlanta (+3.4%) were the leaders.”

Most housing analysts expect home prices to keep gaining and so far they’ve been right.

A March survey of home and mortgage analysts by Zillow showed the consensus median appreciation in 2013 was 4.8%, with only two respondents out of 117 indicating a decline. 

Does this make the homebuilding sector and related REITs a buy?

First, it’s important to have some historical perspective.

Although home prices have staged an impressive rebound, the S&P/Case-Shiller 20-City Index is still 22% lower compared to its 2006-07 peaks. And by definition, market losses greater than 20% are still considered a bear market.

The still elevated number of homeowners with a larger mortgage than the value of their homes is problematic.

CoreLogic reports the percentage of all residential mortgages with negative equity or “underwater” at the end of the first quarter stood at 19.8%. Among the 39 million residential properties with positive equity, 11.2 million have less than 20% equity.

Nevada was the state with the highest percentage of mortgaged properties in negative equity at 45.4%, while Tampa-St. Petersburg-Clearwater, Fla. had the highest percentage of top-25 metropolitan areas at 41.1%.

The threat of higher interest rates is another looming risk that could easily derail the housing rally.

A 30-year fixed rate mortgage now costs 4.53% compared to 3.54% before. In other words, the cost of financing homes is more expensive. And it’s already taken a toll on mortgage refinancing. The Mortgage Bankers Association reports its weekly refinance index has fallen by more than 50% since early May.

While it may yet take a few more months for the housing market to feel the pain of higher rates, ETFs closely tied to U.S. residential real estate are already signaling warning signs.

The iShares DJ US Home Construction ETF (ITB), has slid 9% over the past three months, while the iShares Mortgage Real Estate Capped ETF (REM) has fallen 24.84%. And the iShares Barclays MBS ETF (MBB) has fallen 3.5%, which is almost three-years worth of its 12-month trailing yield!

For home buyers, higher borrowing rates will make home affordability harder. And if the 10-year Treasury yield dances with 3%, it won't be good for the rate sensitive housing market.

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The ETF Advisor Pro Newsletter and its Mega Investment Theme Report identifies major market trends along with actionable ETF strategies.

AEP Venture Awaits PUCT Nod - Analyst Blog

Electric Transmission Texas ("ETT") – a joint venture between the subsidiaries of American Electric Power Co. Inc. (AEP) and MidAmerican Energy Holdings Company – and Sharyland Utilities L.P. have jointly requested the Public Utility Commission of Texas (PUCT) to amend their Certificates of Convenience and Necessity (CCN) to construct the Cross Valley Project.

The Cross Valley Project is a proposed 345-kilovolt transmission line. The project costs in the range of $314 million to $405 million and is expected to be completed in mid 2016. The line will extend from AEP Texas North Edinburg Substation in Hidalgo County, will move south to a location near the existing AEP Texas South McAllen Substation and then head east to the Brownsville Public Utilities Board Loma Alta Substation in Cameron County near the Brownsville Ship Channel. Therefore, this 345-kilovolt transmission line will be crossing portions of Hidalgo and Cameron counties in the Lower Rio Grande Valley of Texas.

Based on this route the length of the transmission line would range from 96 miles to 125 miles. However, the final length would depend on the route approved by PUCT. ETT is responsible for the western portion of the line while Sharyland will be constructing the eastern portion.

Besides promoting economic growth, this transmission line will allow the customers of lower Rio Grande Valley to experience continued reliable electric service.

We note that in May this year, ETT received approval for the construction of another 345-kV transmission line. The line will extend from the Laredo area into the Rio Grande Valley. The project with an estimated cost of $318 million includes construction of approximately 156 miles of 345-kV transmission lines that will connect ETT's Lobo Substation near Laredo with substations north of Edinburg.

American Electric Power is one of the largest investor-owned utility holding companies in the country, catering to over 5 million customers spread over 11 states. How! ever, tepid economies in a number of its service states restrict opportunities for growth. Also, we remain concerned about the uncertainty surrounding pending regulatory cases, its predominantly fossil fuel based generation assets and lower wholesale sales. The company presently retains a short-term Zacks Rank #4 (Sell).

Stocks that are well placed in the industry are Black Hills Corp. (BKH), Companhia Paranaense de Energia (ELP), CPFL Energia S.A. (CPL), all with a Zacks Rank #2 (Buy).

Could the Surging Housing Market Ultimately Hurt the Average American?

In this segment of The Motley Fool's everything-financials show, Where the Money Is, banking analysts Matt Koppenheffer and David Hanson discuss the continued surge of U.S. home prices and what it means for consumers and investors.

Matt and David talk about homebuilder stocks and the long-term outlook for the future of housing prices.

On the heels of the surging housing market, American markets are reaching new highs, and some investors are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

Want more Foolish insight on the housing market? Click here!

You can follow David and Matt on Twitter.

Is This the Key to Extending Apple's Recent Rally?

Whether or not tech giant Apple (NASDAQ: AAPL  ) remains a buy is one of the most constantly talked about issues for tech investors everywhere -- and for good reason. Although the company's certainly created plenty of fortunes with its historic rise, it's also proven quite disappointing over the last 12 months. It seem Apple's shares might have finally found a floor after it announced the astounding increase to its capital return program in late April. However, Fool contributor Andrew Tonner recently saw an analyst note detailing at least one more major move Apple could do this year to keep the gains coming. To find out more, watch the video below.

It's especially worth noting that Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

3 FTSE Dividends Lifted This Week

LONDON -- The FTSE 100 (FTSEINDICES: ^FTSE  ) has suffered a bit of a reversal over the past week. After reaching a 13-year high of 6,876 on May 22, the index of top U.K. shares has since dropped 293 points to today's close of 6,583. But the fall has at least boosted the index's average forward dividend yield a little to 3.2%. But if you're investing for income, you can do probably better than that.

We take a look at three companies that have lifted their dividends this week.

Severn Trent (LSE: SVT  )
Severn Trent raised its full-year dividend by 8.2% to 75.85 pence per share on Thursday after reporting a 3.4% rise in full-year turnover, a 37.3% rise in pre-tax profits, and an 11.2% rise in adjusted earnings per share. The payment consists of a final dividend of 45.51 pence to be added to the earlier interim 30.34 pence.

On the current share price of 2,052 pence, the dividend represents a yield of 3.7%, which is pretty good for such a dependable payer. In fact, with Severn Trent's policy of growing its dividend by RPI plus 3% each year, the firm has already indicated an expected 80.4 pence for the year to March 2014 for a rise of 6%.

Tate & Lyle (LSE: TATE  )
Tate & Lyle also released full-year results on Thursday, revealing a 5% rise in sales. Adjusted pre-tax profit and adjusted earnings per share both gained 4%, allowing the firm to declare a final dividend of 18.8 pence per share, taking the full-year total up 5.2% to 26.2 pence. The shares are currently trading at 825 pence, giving a yield of 3.2%, which is bang on that FTSE average.

Forecasts for next year suggest another 4% rise in earnings and a 5% boost to the dividend to 27.5 pence per share. But those were made before this week's results, so we'll need to wait for any possible reevaluation.

Victrex (LSE: VCT  )
It was interim time for Victrex on Tuesday, and the plastics specialist told us of a modest rise in EPS from 41.6 pence to 41.7 pence. But that had no adverse effect on the company's "progressive dividend policy," and we saw the interim dividend raised by 15% to 10.35 pence per share -- and that comes after a 16% rise in the 2012 final dividend. We were told that the payment "reflects the Board's confidence in the future growth prospects for the business."

For the full year, analyst are currently forecasting a 10% rise in the total dividend to about 41.3 pence, which would provide a yield of 2.4% on the current share price of 1,702 pence.

Finally, if you're looking for top investment ideas, it could well pay to take a close look at what Neil Woodford is buying. The ace investor, whose Invesco Perpetual High Income fund would have turned £10,000 into £193,000 since its launch in 1988, remains bullish on the aerospace and defense sector. If you want to learn more, check out the Fool's latest examination of Woodford's holdings. But hurry, because the report will be available for a limited period only. Click here to enjoy your copy today.

A Fool Looks Back

Earlier this month it seemed as if Facebook (NASDAQ: FB  ) would be buying Waze, the fast-growing traffic app that uses crowdsourcing to deliver breaking news on traffic tie-ups and speed traps. Facebook was reportedly willing to pay $800 million to $1 billion for the Israeli-based company.

Well, now chatter finds Google (NASDAQ: GOOG  ) potentially interested in Waze.

Can we get some navigation tips to get around Waze's headquarters? Things seem to be getting a bit busy with gentleman callers on its porch.

Facebook and Google have the money to complete the deal. They also have the resources to whip up their own Waze knockoff. The problem there is that Waze already has 47 million active users worldwide submitting real-time information to help out their fellow drivers. Why compete against Waze -- and probably lose this game of numbers -- when you can buy it?

Would Google be a better fit than Facebook? That's not the point. At its very core, Google's interest may be primarily to keep Facebook away. Facebook is already siphoning away search traffic and online time. If it wins over the mobile crowd, it will become an even fiercer competitor.

Watch this battle. It will get interesting.

Briefly in the news
And now let's take a quick look at some of the other stories that shaped our week.

8x8 (NASDAQ: EGHT  ) moved higher after posting better-than-expected revenue growth in its latest quarter. The provider of PBX telephony, video conferencing, and other Web-based communication services did miss on the bottom line, but it was still another period of margin expansion and explosive earnings growth. SodaStream (NASDAQ: SODA  ) popped to a fresh 52-week high last week after its well-received Analyst Day, but an analyst this week was feeling more flat than fizz on the company behind the carbonated beverage maker system. J.P. Morgan downgraded the stock but also boosted its price target from $56 to $70 to keep pace with the bubbly share price. Tesla Motors (NASDAQ: TSLA  ) continues to do all of the right things. The electric-car maker on Wednesday wired a payment that zeroes out the federal loan it received four years ago. Tesla claims to be the first American company to fully repay its government loan, but Chrysler disputed the claim. Take it outside, you two.

Tech battles can be profitable for investors
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged among the five kings of tech. Click here to keep reading.

Hercules Offshore to Sell Inland Rigs

Hercules Offshore (NASDAQ: HERO  ) is soon to be roughly $45 million richer thanks to an asset sell-off. The company has inked a deal to sell 11 of its inland barge rigs plus related assets. In the press release announcing the move, the firm did not name the counterparty.

The price will be paid in cash across two tranches. The first will see the company receive $35 million for 10 of the rigs, while the second will see the remaining one change hands and $10 million exchanged. The former tranche is expected to close in the late second quarter of this year, with the latter following shortly thereafter.

Of the rigs being divested, three are active while eight are cold stacked.

More Expert Advice from The Motley Fool

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Why EZCORP Is Ready to Rebound

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, pawn shop operator EZCORP (NASDAQ: EZPW  ) has earned a coveted five-star ranking.

With that in mind, let's take a closer look at EZCORP and see what CAPS investors are saying about the stock right now.

EZCORP facts

 

 

Headquarters (founded)	Austin, Texas (1989)
Market Cap	$975.6 million
Industry	Consumer finance
Trailing-12-Month Revenue	$1.0 billion
Management	CEO Paul Rothamel (since 2010) CFO Mark Kuchenrither (since 2012)
Return on Equity (average, past 3 years)	19.5%
Cash/Debt	$46.7 million/$236.8 million
Competitors	Cash America International  First Cash Financial Services

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 97% of the 669 members who have rated EZCORP believe the stock will outperform the S&P 500 going forward.

Earlier this year, one of those Fools, ValueSpreadsheet, succinctly summed up the EZCORP bull case for our community:

Intrinsic value estimate between [$35 and $50 per share].

Has seen its net profit margin and book value increase steadily over the past years.

PEG ratio way below 1.

In addition, the pawn shop business does great in tumultuous times and is becoming more and more accepted, partly due to the numerous TV shows. I'm convinced!

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong five-star rating, EZCORP may not be your top choice.

We've found another stock we are incredibly excited about -- excited enough to dub it "The Motley Fool's Top Stock for 2013." We have compiled a special free report for investors to uncover this stock today. The report is 100% free, but it won't be here forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

Abbott Laboratories to Acquire Veropharm (ABT)

After an M&A packed morning, Abbott Labs (ABT) announced on Monday afternoon that it is acquiring Russian Pharmaceutical company Veropharm.

The definitive agreement will see Abbott Labs acquire Limited Liability Company Garden Hills, which has a controlling interest in Veropharm. The price of the sale will be between $395 million and $495 million, depending on how much of Veropharm Garden Hills owns at the time. Garden Hills currently owns 80% of Veropharm, but is expected to own 95% by the time the deal closes. The deal is expected to close in the fourth quarter. In May, Abbott Labs announced that it was acquiring CFR Pharma for $3.3 billion.

Abbott stocks ended the day down 12 cents, or 0.29%, but were climbing slightly higher in after hours trading. YTD, the company’s stock is up 6.85%.

ABT Dividend Snapshot

As of Market Close on June 23, 2014

Click here to see the complete history of ABT dividends.