3 Stocks Primed for Fed Action on Housing


NEW YORK ( TheStreet) -- As the Federal Open Market Committee prepares to finish up its first meeting for the year today, rumors abound about a third round of quantitative easing to stimulate housing market recovery.

Investors will expect more information that may reveal the Fed's intentions after a move toward greater transparency earlier this month promised revelations of "qualitative information" about the Fed's balance sheet.

Fed Chairman Ben Bernanke's concern over a housing market that continues to languish was highlighted in a recent white paper sent to Congress. In it, Bernanke raised speculation that a third round of easing, or QE3, may target ramping up that market, buying mortgage-backed securities and bringing more reasonable underwriting and appraisal practices than today's tough standards.

We asked Brian Kelly, co-founder of Shelter Harbor Capital, what stocks might benefit from Fed steps to help the housing market. Here are three stocks he said are poised to benefit:

Mohawk Industries ( MHK)

Company Profile: Mohawk Industries is a producer of floor covering products, such as rugs, carpet and ceramic tile, for residential and commercial uses in the U.S. and residential uses in Europe.

Share Price: $63.00 (Jan. 23 Close)

Year-to-Date Increase: About 5.3%

TheStreet Ratings Grade: Buy. TheStreet Ratings team rates the shares a buy because the current price-to-earnings ratio indicates a discount compared to other household durable companies.

Room to benefit: As the FOMC ends its meeting they will inevitably discuss the housing market and ways to speed recovery. Any move toward offering foreclosed properties as rentals will necessitate landlord renovations to prepare the homes for tenants. Mohawk Industries may benefit as flooring receives updates.

"As you get some of these foreclosed homes on the market -- either as rental properties or sales -- they are going to be fixed up and those companies that go inside the homes are going to benefit," Kelly said.

USG ( USG)

Company Profile: USG is a manufacturer and distributor of building materials for new residential and nonresidential projects, as well as products for residential and nonresidential repair and remodeling construction.

Share Price: $13.25 (Jan. 23 Close)

Year-to-Date Increase: About 30%

TheStreet Ratings Grade: Sell. TheStreet Ratings team rates the shares a sell because the company has reported a loss in its last 16 quarters, while its price-to-book ration indicates a significant premium compared to the S&P 500 average.

Room to benefit: While the company has clearly suffered with the broader housing market, it also has a lot to gain. The Chicago-based building products company's shares have fallen over 85% since the U.S. housing bubble burst beginning in 2006. With the housing market's depressed conditions suppressing earnings, any news creating optimism about a recovery may benefit these shares.

"Any QE3 would be directed toward the housing sector. Bernanke has recognized that it is a problem that needs to be solved, so it most likely will be solved," Kelly said when recommending USG and other companies involved in home remodeling.

SPDR KWB Regional Banking ( KRE)

Company Profile: The SPDR KWB Regional Banking is an exchange traded fund that seeks to closely match the returns and characteristics of the S&P Regional Banks Select Industry Index. Its holdings include lenders such as Fifth Third Bancorp ( FITB), Susquehanna Bancshares ( SUSQ), East West Bancorp ( EWBC) and Firstmerit Corp. ( FMER)

Share Price: $26.41 (Jan. 23 Close)

Year-to-Date Increase: About 7.8%

TheStreet Ratings Grade: Sell. TheStreet Ratings team rates has not changed its rating on the regional banks ETF in three years. While the ETF's three-year return of 2.46% is well below average in comparison to closed-end funds rated by TheStreet Ratings, its one-year and year-to-date returns show continued improvement to average and well above average, respectively.

Room to benefit : One issue continuing to prevent recovery in the housing market has been the difficulty perspective buyers face in procuring a mortgage, and regional banks in particular seem poised to benefit if regulations are eased. Though pressured by near record-low interest rates on loans, loan volume has been picking up. With this increasing volume, and other better growth opportunities, regional banks are in a better place than their larger counterparts.



"The regional banks have been doing a better job at growing market share in the traditional sphere," and they stand to benefit if acquiring a mortgage becomes easier, Kelly said.

-- Written by Kaitlyn Kiernan in New York.

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