Don’t look now … but anything related to construction or real estate is really getting rocked here!
Mike’s Moves to Make
Buy: Inverse real estate ETFs; put options on construction, housing, real estate stocks; consumer staples; food and beverage stocks
Sell: REITs; construction suppliers; home improvement retailers; toolmakers; appliance and HVAC companies
Those multifamily Real Estate Investment Trusts (REITs) I’ve been telling you to stay the heck away from? They’re dropping like flies. The latest was AvalonBay Communities (AVB). Its shares tanked to within a whisker of a two-year low this week after the apartment company missed quarterly profit targets, which it had issued only three months earlier, and then warned of lower-than-expected earnings going forward.
The problem? We’re swimming in apartment supply from sea to shining sea because of a massive construction boom fueled by an epic wave of easy lending. That’s causing rent concessions and vacancy rates to rise.
Then there are the companies that make and sell everything from faucets to cabinets to paint to appliances. Several of them got crushed this week after reporting lousy earnings and revenue, and they are warning of worse days ahead. Whirlpool (WHR) plunged more than $18 on Tuesday alone, while Sherwin-Williams (SHW) tanked $30. Masco (MAS) dropped 9%, while Home Depot (HD) sank 3.5% to a seven-month low.
Have you ever seen those Mobile Mini (MINI) temporary offices and storage units at a local commercial or residential construction site? They’re the beige ones with the blue signs and white writing on the side. Well, that stock plunged almost 16% on Tuesday after both sales and earnings dropped from year-ago levels.
Meanwhile, contracting and construction-management company Tutor Perini (TPC) has given up every penny of gains since its May breakout. And Manitowoc (MTW), the maker of construction cranes you’ve probably seen on your local skyline? It pre-announced weak results a few days ago, sending its shares to the lowest level since March.
Why is this happening? Because of the ongoing turn in the credit cycle! Just like I warned multiple times over the past several months here in Money and Markets, the easy money that fueled the latest mania in commercial real estate and construction is starting to dry up.
|A maker of construction cranes saw its shares drop to their lowest level since March.|
That means REITs, housing stocks, construction suppliers, and lenders with heavy real estate exposure are going to be pure poison for your portfolio. I trust you already sold these stocks months ago when they were near their highs, and have dodged the carnage. If not, do so now.
Or better yet, join me in my All Weather Trader service. That’s where I’m putting my credit-cycle experience to work for my subscribers, recommending investments that RISE in value as vulnerable stocks in sectors like construction and real estate FALL. I’d love for you to join me.
Not ready to take that step? Still too heavily exposed to real estate investments, either in the form of shares or physical property? Then at least consider hedge investments like the ProShares Short Real Estate (REK) or the ProShares UltraShort Real Estate (SRS).
Just remember that these inverse ETFs have issues with longer-term tracking errors. You need to manage these kinds of positions as a result, buying on pullbacks and selling on big rallies (or as I said earlier, you can let me do the work for you in my All Weather Trader service).
If you’re a more conservative investor who doesn’t want to go that route, then another great strategy for avoiding problems in real estate is to invest completely AWAY from the sector. Focus on less economically sensitive, more stable companies in sectors like food-and-beverage and consumer staples.
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I’m seeing some incredible bargains there, and some of them are paying off nicely for subscribers to my Safe Money Report. I recommended Reynolds American (RAI) a few months ago, for instance, and it just received a takeover offer at a substantial premium to where the stock was trading. You can get on board with those kinds of picks here.
One last word of advice: The deterioration in construction and real estate … and the increasing woes in other sectors like autos … aren’t good news for the U.S. economy. They’re starting to lead to layoffs at companies like MTW, temporary plant shutdowns at companies like Ford Motor (F), and other problems. That’s one reason I’m still relatively cautious on the stock market overall, and recommend you stay that way, too.
So what do you think? Did you dump these turkeys in the construction (and auto) sectors months ago? Will those problems slam the overall economy and the markets? Or can strength elsewhere offset that? Where are you seeing the most opportunity right now? Let me know in the comment section.
Until next time,