Could Housing Stocks Double?

Market volatility seems to have returned in 2010 and economic recovery seems farther away than it did just a few months ago. The month of May was just awful for investors. The stock market dropped 8% and all 30 Dow stocks posted losses for the first time since 2008. The Gulf oil spill, disappointing employment numbers, the stock market’s “flash crash” and the expiration of the home tax credit also seemed to pile on.

This week, the most visible economic report showed new home sales plunging 33% to only 300,000. This number was much worse than the anticipated 400,000 home sales. However, Jim Cramer said on yesterday’s Mad Money show that investors should have been expecting this big drop.

Housing related stocks have been punished over the past few months. The markets seemed to be pricing in an expected fall off in home sales when the federal tax cut expired. However, this week’s housing report send the stocks even lower. Too low in Cramer’s opinion! Cramer would be buying right now since housing is so out of favor. Of course, Cramer is bullish on housing long-term and even has predicted a housing shortage by 2012.

Cramer recommends that investors revisit these housing stocks and even speculated that housing stocks could double from their current levels.

Lowe’s (LOW: 26.88 0.00%) – Cramer has hated this stock in the past, but he thinks its drop from $28 to $21 makes it attractive.

Fortune Brands (FO: 0.00 N/A) – Similar to LOW, the decline from $54 to $42 in FO’s stock price makes it too cheap to pass up.

Toll Brothers (TOL: 23.36 0.00%) – The last time TOL’s stock price was at $17, management was saying that business was “hideous”. Now management is simply stating that business is “light”.

Cramer believes that investors will soon recognize how attractive these housing stocks are. Once that happens, it will push their stock prices much higher. Many of these same investors were down on auto stocks following the expiration of the cash for clunkers program. However, Cramer recommended that investors buy Ford (F: 12.84 0.00%) at that time and since then the stock has doubled. Could housing stocks be the next to double?