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Tickers in this Article: BXG, TWP, MTH, GTY, ROL
The real estate sector has been one of turmoil over the past year or two; with house prices dropping at an estimated annualized rate of 20%. About a month ago, I wrote Real Estate Big Bear For July 9 and shared five companies in the sector that had all lost more than 20% over the period of a month. Times haven't changed much for this beleaguered sector, as housing prices continue to fall in many hard hit areas of the United States.

Not one week ago, the Detroit News shared an article on a house being listed and sold for $1. True, this is an extreme example of the depressed real estate sector, but I really think it shows how bad thing may have gotten for many that have their hands in the real estate sector - even at $1 it still took 19 days to find a buyer!

But all is not lost in real estate and its connected industries. Many smaller capitalization stocks have been able to impress investors with returns well above their counterparts by providing services above and beyond what may be expected by others in the sector. Here are five companies that are connected to the real estate sector, and they have produced more than 25% in share price gains over the past month.

Company One Month Gain* Market Capitalization
Trex Company
86.9% 9M
Meritage Homes
Getty Realty
Data as of market close August 15, 2008

Trex Built On A Solid Foundation
Trex makes and sells wood-alternative fencing, railing, decking, and trim products within the U.S. and Canada. These products have been selling over and above all expectations recently. On July 30, the company reported its Q2 earnings which more than tripled to $7.9 million. Along with the earnings report, Trex provided guidance for Q3 sales above the Street expectations at between $90-97 million. Shares climbed about 26% on this release in just one day. (Explore the controversies surrounding companies commenting on their forward looking expectations in Can Earnings Guidance Accurately Predict The Future?)

Revenue did fall, however, from $119 million in Q2 of 2007 to just $95 million this quarter. Jim Cline, VP and CFO, said this decline was "due mainly to the macroeconomic conditions in the marketplace."

Slowing revenue in a market where people are spending less on their houses is expected; however, the important thing for me to see is that Trex continues to remain profitable - and on a percentage basis is actually becoming more profitable. A quick look at its balance sheet, though, will tell us whether Trex can wait out the storm in this sector. With almost $18 million in cash and cash equivalents as of June 30, Trex is in a very liquid position. This cash can be used to expand, or to provide a nice cushion, should times become worse in the real estate sector. This cash is well up from the $66,000 in cash that Trex had at the end of Q1 2008. Free cash flow of $18 million in Q3 helped push this number up.

Add Your Two Cents
What do you think will happen with these diamonds in the rough going forward? Perhaps as housing prices continue to fall, home owners are more willing to spend money on increasing value through additions such as maintenance free decking and fencing. Will Trex Company be able to continue to beat expectations by providing an excellent product in a slowing market? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

For further reading, be sure to check out our related article Investing In Real Estate.

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