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The Zacks Analyst Blog Highlights Brenttag, Kronos Worldwide, Nucor, Ryerson Holding and Daqo New Energy
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For Immediate Release
Chicago, IL – June 20, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Brenttag SE (BNTGY - Free Report) , Kronos Worldwide, Inc. (KRO - Free Report) , Nucor Corp. (NUE - Free Report) , Ryerson Holding Corp. (RYI - Free Report) and Daqo New Energy Corp (DQ - Free Report) .
Here are highlights from Friday’s Analyst Blog:
The Housing Market Is Complicated
Yesterday, I was talking about how companies would be cutting back production if demand started to shrink. And today, I want to talk about the housing market where we are already seeing it happen.
According to the latest available data, new home sales dropped 16.6% in April, mainly driven by the higher cost of construction (that is being passed on to consumers). Existing home sales are also coming down (-2.4% in April) as prices remain elevated and mortgage rates continue to climb.
One would have expected less caution from homebuilders given the significant demographic-driven demand out there and people only staying away from the market because of the high prices. Nor is there any possibility of inventories piling up if prices are lowered, given the strength of underlying demand.
But builders don't seem to be in the mood to take risk. One reason could be the persistent cost escalation, both in terms of raw material and labor. Whether they will be willing to build inventory once the supply chain normalizes and the labor market cools (somewhat at least) is anybody's guess. Since oil and gasoline prices aren't expected to soften much, it doesn't look likely to happen any time soon.
Builders could also be factoring in much weaker demand over the next couple of years as a result of the rate hikes. Maintaining lower inventories would allow them to collect better prices. The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index certainly seems to be rising to the occasion (pun intended). Between Jan 2021 and March 2022, there has not been so much as a pause, with price increases actually accelerating in the first three months of this year.
Housing market data comes from a number of places, including the Census Bureau, the HUD and the National Association of Realtors to name a few, and they are released at different times and for different periods, all of which makes the data a little difficult to correlate.
Housing starts that had been buoyant since October dropped sharply in May. As starts were holding relatively steady up to April, inventory increased slightly. But with starts dropping off so sharply in May, inventory increases could be checked even if demand falls further.
And existing home sales, which make up a significantly higher share of home sales, also continue to trend lower.
The 30-year mortgage rate has been rising quite consistently from Feb 2022. Mortgage applications have been mostly in negative territory. Last week's spike was likely in order to get in before the Fed's rate hike announcement this week.
Conclusion
This creates a peculiar problem. While rate hikes are designed to cut consumption, the end goal is to have inventories build up so prices can come down. But home builders are reacting quickly to the slight inventory increase, which is keeping prices high. Prices in the housing market really need to come down because they are the most significant factor in fighting inflation in the core basket (minus food and energy).
If this continues, and production continues to shrink, it could send us into a recession.
Better Buy
Because of the above situation, it's probably a good idea to avoid homebuilders right now. Safer bets are diversified chemicals suppliers Brenttag SE and Kronos Worldwide, Inc., steel producers Nucor Corp. and Ryerson Holding Corp., as well as Daqo New Energy Corp.
Sporting Zacks Ranks of #1 (Strong Buy) or #2 (Buy) and value-growth-momentum (VGM) Scores of A or B, these stocks belong to happening industries. So they have better chances of appreciation. Additionally, analysts are also positive about them, as evidenced by their recent estimate revisions.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights Brenttag, Kronos Worldwide, Nucor, Ryerson Holding and Daqo New Energy
For Immediate Release
Chicago, IL – June 20, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Brenttag SE (BNTGY - Free Report) , Kronos Worldwide, Inc. (KRO - Free Report) , Nucor Corp. (NUE - Free Report) , Ryerson Holding Corp. (RYI - Free Report) and Daqo New Energy Corp (DQ - Free Report) .
Here are highlights from Friday’s Analyst Blog:
The Housing Market Is Complicated
Yesterday, I was talking about how companies would be cutting back production if demand started to shrink. And today, I want to talk about the housing market where we are already seeing it happen.
According to the latest available data, new home sales dropped 16.6% in April, mainly driven by the higher cost of construction (that is being passed on to consumers). Existing home sales are also coming down (-2.4% in April) as prices remain elevated and mortgage rates continue to climb.
One would have expected less caution from homebuilders given the significant demographic-driven demand out there and people only staying away from the market because of the high prices. Nor is there any possibility of inventories piling up if prices are lowered, given the strength of underlying demand.
But builders don't seem to be in the mood to take risk. One reason could be the persistent cost escalation, both in terms of raw material and labor. Whether they will be willing to build inventory once the supply chain normalizes and the labor market cools (somewhat at least) is anybody's guess. Since oil and gasoline prices aren't expected to soften much, it doesn't look likely to happen any time soon.
Builders could also be factoring in much weaker demand over the next couple of years as a result of the rate hikes. Maintaining lower inventories would allow them to collect better prices. The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index certainly seems to be rising to the occasion (pun intended). Between Jan 2021 and March 2022, there has not been so much as a pause, with price increases actually accelerating in the first three months of this year.
Housing market data comes from a number of places, including the Census Bureau, the HUD and the National Association of Realtors to name a few, and they are released at different times and for different periods, all of which makes the data a little difficult to correlate.
Housing starts that had been buoyant since October dropped sharply in May. As starts were holding relatively steady up to April, inventory increased slightly. But with starts dropping off so sharply in May, inventory increases could be checked even if demand falls further.
And existing home sales, which make up a significantly higher share of home sales, also continue to trend lower.
The 30-year mortgage rate has been rising quite consistently from Feb 2022. Mortgage applications have been mostly in negative territory. Last week's spike was likely in order to get in before the Fed's rate hike announcement this week.
Conclusion
This creates a peculiar problem. While rate hikes are designed to cut consumption, the end goal is to have inventories build up so prices can come down. But home builders are reacting quickly to the slight inventory increase, which is keeping prices high. Prices in the housing market really need to come down because they are the most significant factor in fighting inflation in the core basket (minus food and energy).
If this continues, and production continues to shrink, it could send us into a recession.
Better Buy
Because of the above situation, it's probably a good idea to avoid homebuilders right now. Safer bets are diversified chemicals suppliers Brenttag SE and Kronos Worldwide, Inc., steel producers Nucor Corp. and Ryerson Holding Corp., as well as Daqo New Energy Corp.
Sporting Zacks Ranks of #1 (Strong Buy) or #2 (Buy) and value-growth-momentum (VGM) Scores of A or B, these stocks belong to happening industries. So they have better chances of appreciation. Additionally, analysts are also positive about them, as evidenced by their recent estimate revisions.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.