8 Building-Products Stocks Leading the Housing Recovery

BOSTON ( TheStreet) -- Homebuilders' stocks have jumped an average of 31% this year but are now looking overpriced, given the muddled outlook for new-home demand for the rest of 2012.

Standard & Poor's has a "negative" outlook on the homebuilding industry as it expects "only a slight recovery" for the balance of this year. The research firm has "hold" recommendations on the industry's leaders, KB Home ( KBH), Lennar ( LEN) and D.R. Horton ( DHI), and a "sell" on its biggest player, PulteGroup ( PHM), after its 56% gain this year.

The broader S&P 500, in contrast, is up 12% this year.

Home-improvement retailers Lowe's ( LOW) and Home Depot ( HD) are also looking pricey after each has gained about 24% this year, so S&P has "sell" ratings on those two as well.

But it's a different story for many of the building industry's suppliers. Although some have had share-price gains of as much as 78% this year, many are still getting analyst "buy" recommendations as they are seen benefiting from continued sales to their commercial and industrial customers, home remodelers, as well as the new-home builders gearing up for an expected busy summer building season.

Housing-products bellwether Masco ( MAS) brought that home April 30, as the kitchen cabinets and plumbing fixtures manufacturer reported a better-than-expected first quarter, including a 7% sales increase. "North American housing activity appears to be improving, and we continue to believe we are positioned to outperform the industry recovery," CEO Tim Wadhams said in a statement.

After trailing the S&P 1500 in 2011, the S&P Building Products Index gained 18.5% in the first quarter versus the 12% advance of the S&P 1500. S&P has a "neutral" outlook for the industry now.

Here are eight building materials suppliers' stocks representative of various segments of the industry, ranked in inverse order of the number of analysts' "buy" ratings:

8. Universal Forest Products ( UFPI)

Company profile: Universal Forest, with a market value of $742 million, manufactures lumber products, including pressure-treated wood, engineered roof trusses, dimension lumber, lattice, fence panels, deck components, and kits for a variety of outdoor projects.

Dividend Yield: 1%

Investor takeaway: Its shares are up 21% this year and have a three-year, average annual return of 5%. Analysts give its shares three "hold," ratings, according to a survey of analysts by S&P. In the first quarter, the company earned 21 cents per share versus a loss of 19 cents per share last year. Universal Forest Products said retail products sales rose 12% in the period and manufactured housing, 34%.

7. Masco ( MAS)

Company profile: Masco, with a market value of $5 billion, is one of the largest housing-related manufacturing and service businesses in the U.S. as a maker of Delta Faucet plumbing products, KraftMaid Cabinetry, Behr paints, and Milgard Windows. The company also operates internationally, primarily in Europe.

Dividend Yield: 2.28%

Investor takeaway: Its shares are up 27% this year and have a three-year, average annual return of 17%. Analysts give its shares one "buy" ratings, one "buy/holds," 13 "holds," and three "weak holds," according to a survey of analysts by S&P. Analysts estimate it will earn 24 cents per share this year and that that will grow by 163% to 63 cents in 2013.

S&P has it rated "buy" and says it expects a modest new-home sales revival ahead, but "we see home repair and improvement spending picking up before new-home markets."

6. Lennox International ( LII)

Company profile: Lennox, with a market value of $2 billion, makes products for the heating, ventilation, air conditioning and refrigeration industries.

Investor takeaway: Its shares are up 20% this year and have a three-year, average annual return of 12%. Analysts give its shares two "buy" ratings, one "buy/hold," six "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. Analysts estimate that it will earn $2.47 per share this year and $3.21 next, a 30% increase.

In the first quarter, Lennox lost a better-than-expected 1 cent per share on a 2% rise in revenue.

5. US Home Systems ( USHS)

Company profile: US Home, with a market value of $63 million, makes home-improvement products. Its line of products includes replacement home appliances, cabinetry, countertops, and other resurfacing products.

Dividend Yield: 1.3%

Investor takeaway: Its shares are up 32% this year and have a three-year, average annual return of 62%. Analysts give its shares two "buy" ratings, according to a survey of analysts by S&P. Analysts estimate it will earn 69 cents per share this year and 84 cents per share in 2013.

4. USG Corp. ( USG)

Company profile: USG, with a market value of $2 billion, is a global manufacturer and distributor of building materials, including gypsum wallboard and ceilings as well as tile and flooring.

Investor takeaway: Its shares are up 78% this year and have a three-year, average annual return of 7%. Analysts give its shares three "buy" ratings, three "buy/holds," eight "holds," and two "weak holds," according to a survey of analysts by S&P.

S&P has it rated "buy," with a $25 price target, a 35% premium to its current price. S&P says the company "has solid long-term prospects" and after cleaning up its balance sheet, it had over $800 million of cash and equivalents as of year-end 2011.

3. Armstrong World Industries ( AWI)

Company profile: Armstrong, with a market value of $2.6 billion, operates three business units: flooring, building and cabinetry, for residential and commercial use.

Investor takeaway: Its shares are up 20% this year and have a three-year, average annual return of 54%. Analysts give its shares four "buy" ratings, one "buy/hold," six "holds," and one "weak hold," according to a survey of analysts by S&P. For fiscal 2012, analysts estimate it will earn $2.89 per share, and that will grow by 19% to $3.44 per share in 2013.

2. Owens Corning ( OC)

Company profile: Owens Corning, with a market value of $4 billion, is a glass fiber technology and composites provider for the commercial and residential building materials market. The company operates through two main segments: composites, which sells glass fiber materials, and building materials, which consists of insulation and roofing products.

Investor takeaway: Its shares are up 20% this year and have a three-year, average annual return of 24%. Analysts give its shares five "buy" ratings, six "buy/holds," and four "holds," according to a survey of analysts by S&P.

The company had a loss 38 cents per share in the first quarter on higher materials costs and layoffs, but it expects that the slowly improving U.S. housing market will help its building materials division, which saw revenue growth of 17% in the first quarter.

1. A.O. Smith ( AOS)

Company profile: A.O. Smith, with a market value of $3.5 billion, manufactures electric motors and water heaters used in residential and commercial temperature-control products and pumps. Customers include York International and Sears.

Dividend Yield: 1.34%

Investor takeaway: Its shares are up 19% this year and have a three-year, average annual return of 34%. Analysts give its shares seven "buy" ratings, three "buy/holds," and two "holds," according to a survey of analysts by S&P.

S&P has it rated "strong buy" with a $55 price target, a 13% premium to the current price. It says the company is aggressively expanding its presence in developing markets," particularly China, while maintaining "relatively predictable cash flows generated by replacement water heater sales."

>>To see these stocks in action, visit the 8 Stocks Leading the Housing Recovery portfolio on Stockpickr.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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