Stocks that will benefit from the weakening housing market

The waning property market is putting housing-exposed stocks at risk but there's one group that could see some benefit from this trend.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The price drop in the housing market is accelerating and it threatens the share prices of a range of shares that are exposed to this industry.

This includes home builders like Mirvac Group (ASX: MGR) to property website operator REA Group Limited (ASX: REA). But there's another group of stocks that may actually get a boost from the waning market.

These are stocks that are exposed to home renovations as this sector tends to get a boost when home prices drop (assuming the falls aren't so significant that it brings down the economy). Your first instincts may direct you to Wesfarmers Ltd (ASX: WES) given its ownership of Bunnings, the largest DIY chain in Australia, but that isn't necessarily the best way to gain some exposure to this thematic.

For one, Wesfarmers doesn't give you as clean an exposure to the renovation market as it's a conglomerate that has its hands in other sectors like retail and coal.

It's also the same story for building supply companies like Boral Limited (ASX: BLD) and James Hardie Industries plc (ASX: JHX) given their significant exposure to the construction market and the US market.

A better alternative could be bathroom and kitchen furnishing supplier GWA Group Ltd (ASX: GWA). The stock has only just about kept pace with the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index with around an 8% gain over the past year.

Some investors may have been put off by management's guidance for flat earnings before interest and tax (EBIT) in the second half of FY18 over the first half when it delivered an EBIT of $41.8 million.

This was seen as a profit downgrade as GWA has a history of producing a stronger second half result.

But Morgans believes that the market is underestimating the group's performance this financial year with consensus forecasts tipping a 5.2% drop in earnings per share (EPS) for the period.

"Over the past 3 years, 2H EBIT has been on average 9% higher than 1H EBIT," said the broker.

"The R&R [renovation and restoration] market should be fairly stable and while new housing activity has slowed over the past 12 months, the result should still benefit from a strong backlog of work."

Another stock that is well placed to benefit from the renovation market is fellow bathroom furnishing group Reece Ltd (ASX: REH).

While Reece has made a major $1.9 billion acquisition of MORSCO Inc to give it a beachhead into the US market, half of its revenue will still be generated in the Australian market.

There's another stock that is also well placed to perform strongly in FY19, according to the experts at the Motley Fool.

This stock has raced ahead over the past year but our experts are tipping this momentum to be sustained.

Click on the free link to find out what this stock is and why it should be on your radar.

Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Growth Shares

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
Growth Shares

Invest $10,000 into these Australian shares in December

Analysts think these shares could generate big returns for investors.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Growth Shares

2 of the best ASX growth shares money can buy

Bell Potter rates these growth shares very highly. But why?

Read more »

A smiling travel agent sitting at her desk working for Corporate Travel Management
Growth Shares

My 2 best ASX growth shares to buy in November

Growth continues to catch the market's attention.

Read more »

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Growth Shares

Buy these ASX growth shares for 16% to 25% returns

Analysts are saying good things about these buy-rated shares.

Read more »

two children squat down in the dirt with gardening tools and a watering can wearing denim overalls and smiling very sweetly.
Growth Shares

How to maximise $10,000 by investing in 2 ASX growth shares

Here are my best growth ideas on the ASX right now.

Read more »

A man sees some good news on his phone and gives a little cheer.
Growth Shares

These ASX 200 growth shares could rise 50% to 60%

Big returns could be on offer from these growing companies according to analysts.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Growth Shares

Up 111% in six months, this soaring ASX share is backed to keep rising

One fund manager thinks this ASX growth share can continue its phoenix performance.

Read more »

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

These ASX growth shares are being tipped to smash the market

Returns of 14% to 68% could be on the cards for buyers of these shares according to brokers.

Read more »