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Home arrow Real Estate News arrow General News arrow Stocks pick up holds back in housing

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Stocks pick up holds back in housing
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Friday, 25 August 2006

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NEW YORK  - Companies providing to Americans’ needs and vices would do better than others despite a fall in US house prices that hurt spending across the board.

  Even though US homeowners feel poorer for the stock of retailers and leisure companies, they will always need to buy groceries, feed their addictions.  So companies selling consumer goods, food, health care, tobacco and alcohol are better placed to weather the impact of a slowing housing sector than others.  "The interesting sectors are ... soaps, suds and cereal," said Don Gher of Bellevue, Washington-based Coldstream Capital Management. "Investors are looking for companies that will deliver even in an economic downturn. And typically those are companies that are aligned with selling the basic products or consumer staples."

Slowdown in housing has been faster and steeper.  The market is flushed with unsold homes, as real estate speculators try to unload properties they bought in hopes of immediate profit.

In recent weeks, builders like Toll Brothers Inc. (NYSE:TOL - news), D.R. Horton Inc. (NYSE:DHI - news), Pulte Homes Inc. (NYSE:PHM - news) and Hovnanian Enterprises Inc. (NYSE:HOV - news) have reported higher cancellations and slashed forecasts for the rest of the year.

"The big picture is that the economy is slowing and the housing market has a good deal to do with it," said Rosalind Wells, chief economist at the National Retail Federation.

Investors fear that the slowing housing market will lead Americans to cut back on overall consumer spending.

The S&P retail index (^RLX - news) has lost more than 10 percent since the end of April, while the Dow Jones travel and leisure index (^DJUSCG - news) is off nearly 10 percent, compared with a roughly 1 percent drop in the S&P 500 index (^SPX - news)  But the Dow Jones food producers index (^DJUSFO - news), which counts companies such as Kraft Foods Inc. (NYSE:KFT - news) and General Mills (NYSE:GIS - news) as components, is up about 4 percent over the same period.

Average consumers who lose the comfort of owning an expensive home will pull back on spending on luxuries, but they will still need to clothe themselves, go to the doctor, remodel their kitchens, smoke and have that occasional beer.

"People who are not moving out of their homes tend to redecorate or remodel," Gher said, adding that companies such as Home Depot Inc. (NYSE:HD - news), the world's largest home-improvement retailer, could benefit.

Big names in other sectors, including health care companies Johnson & Johnson (NYSE:JNJ - news) and Amgen Inc. (Nasdaq:AMGN - news) and cereal maker Kellogg Co. (NYSE:K - news), will continue to see demand for their products despite the slowdown, Gher said.

"If you are on one of Amgen's products because you have cancer, you still have to buy the product," Gher said. "As opposed to General Motors (NYSE:GM - news) or other companies that are more cyclical in nature."

Stocks in companies catering to people's vices also do well in a slowdown. The tobacco index (^TOB - news), including companies such as Altria Group Inc. (NYSE:MO - news) and Reynolds American Inc. (NYSE:RAI - news), is up nearly 6 percent since the end of April.

 
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