Key points
- Buffett has found interest in homebuilder stocks; this is what happens behind the scenes of that space.
- For these same reasons, stocks like Wayfair attract the attention of many analysts. They are destined to explode in the coming months.
- No competitor even comes close to offering what this title brings to the table today.
- 5 stocks we like best from the SPDR Consumer Discretionary Select Sector fund
Historically, cyclical stocks tend to outperform the rest of the pack when the Federal Reserve (Fed) lowers interest rates to make money cheaper and financing more flexible for both businesses and consumers. You can see it in consumer discretionary stocks like Lululemon Athletica Inc. NASDAQ: LULU, which outperformed the broader S&P 500 index by 122.3% over the 2020-2023 period. History could repeat itself, or at least rhyme in the next cycle with the proposed rate cuts.
In the next months, consumer-friendly factors will push Wayfair Inc. NYSE: W along with a new boom in the real estate sector. Today’s economy keeps people too busy to go out and pick up furniture for their new homes, so Wayfair’s business model shines.
Favorable winds at play
Warren Buffett initiated a position in homebuilder stocks in the fourth quarter of 2023, with names like D.R. Horton Inc. NYSE: DHI AND PulteGroup Inc. NYSE: PHM. His investments reflect the market turning bullish on Wayfair stock.
According to ECM Group NASDAQ: ECM, most mortgages opened in the United States today have an average interest rate of 3.25%, significantly lower than today’s high rates of 7.3% for a 30-year fixed mortgage. Additionally, the median home value is $492,000, up from approximately $383,000 pre-pandemic (or 28.5% higher).
Not only are mortgages near all-time highs, but so are prices, which presents a double hurdle for anyone considering buying a home today. Likewise, most homeowners probably aren’t looking to get rid of their 3.25% mortgage only to have to look for a home at a new 7.3% rate.
Housing stocks could help normalize prices a bit to allow new buyers to return, and mortgage rates could fall now that the Fed has proposed interest rate cuts this year. Here you can start to see some of the reasons behind Buffett’s purchase, expecting not only a building boom but also a new wave of real estate transactions, but is it too late to get in?
Juice to squeeze
You can watch the performance of consumer discretionary stocks, which you can watch in real time through SPDR fund for selected consumer discretionary sectors NYSEARCA: XLY. Over the past six months this sector has underperformed the broader S&P 500 index by 6%.
The market had aggressively priced interest rate cuts for March this year. However, according to CME Group’s FedWatch tool, things look more like May or even June rate cuts. This disappointment has led markets to abandon some consumer names, leaving many opportunities for names like Wayfair.
Wayfair shares are trading just 57% of their 52-week high; meanwhile, it’s set to increase its earnings at clips that no other competitor comes close to.
Most will look to add a location to the top names like Amazon.com Inc. NASDAQ: AMZN, Etsy Inc. NASDAQ: ETSY OR eBay Inc. NASDAQ: EBAY; however, these are not specialized platforms like Wayfair.
Now that you know the specific trends in real estate inventory, which comes in large quantities, furniture will find its way into shopping carts as new homes are purchased.
Analysts are optimistic about Wayfair’s future EPS as specializing in the one thing that could thrive during this new real estate cycle will pay off big. EPS is expected to grow 170% over the next 12 months, head and shoulders above Amazon’s 29%, Etsy’s -1.5% and eBay’s 5.7%.
Analysts predicting massive growth have reached a consensus price target of $74.10 per share, predicting an upside of 42.4% from where the stock is trading today.
Before you consider the Consumer Discretionary SPDR Fund, you’ll want to hear about it.
MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and the SPDR Consumer Discretionary Select Sector fund wasn’t on the list.
While the SPDR Consumer Discretionary Select Sector Fund currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.
View the five stocks here
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