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Adding to Two Recovery Plays

This financial and this housing play are both leveraged to an improving economy.
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Goldman Sachs (GS) is a new position for us, and after you have received this Alert, we'll add 25 shares at $118.78. We'll also buy 100 shares of Weyerhaeuser (WY) at $27.60.

Goldman is our play on the gradual recovery to the U.S. economy, and it is at trough-level returns (return on equity is at 8.6%, well below the 32% seen at its peak). It also has an improving base business in investment banking, fixed income, currencies and commodities (FICC) and a seasonal uptick to its capital markets business. Trading at 0.9x tangible book value, the valuation is also attractive.

Weyerhaeuser is our play on housing, and since the stock is down today, we'll pick up more to build out this position. Housing continues to be a strong theme for the U.S., and given the Fed's move yesterday to continue its program of purchasing mortgage-backed securities as well as extending its policy of a fed funds rate of zero to 25 basis points, we see the momentum continuing.

We continue to look at Toll Brothers (TOL) as an alternative play, and we are waiting for weakness. We like its dominance, backlog of homes, pricing improvement and relative better balance sheet compared with its peers.

After our trades, we'll own 275 shares of GS, or 1.2% of the portfolio, and 1,900 shares of WY, or 1.9%.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUSwas long GS and WY.

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