Ride The Refinance Wave With Williams Sonoma

Low interest rates are kicking off a refinance wave in the U.S..

As the Fed looks less and less likely to raise rates this year, mortgage rates are dropping. That’s encouraging homeowners to refinance and either pull equity out of their homes or lower their monthly payments.

Take a look at the mortgage activity over the last few months. You can see the refinance wave is driving the highest activity since late 2013!

Mortgage refinance wave

This trend should be a major plus for retail companies that sell home goods and furnishings. That’s because people often refinance when they’re making improvements to their homes. Lower mortgage payments (or cash pulled from home equity lines) can go a long way toward sprucing up a home.

Refinance Wave Should Boost WSM Profits

I’ve had my eye on Williams Sonoma (WSM) lately. This is one of the companies I expect to benefit from the refinance wave. And its also one of the stocks we’ve used to generate instant income in my Income on Demand trading service.

Williams Sonoma is a specialty retailer that focuses on merchandise for furnishing and accessorizing homes. In other words, it’s the kind of place I try to avoid in the mall. My teenage girls could have a field day picking out new stuff for their rooms. And my wife is a big fan of WSM’s “Pottery Barn” brand.

WSM Brands_opt

The company has been steadily increasing its revenue and recently hit a new record of $5.0 billion in annual sales. The refinancing wave should continue to drive sales higher, which in turn should help WSM shares trade higher.

Deep Value Rebound Candidate

If you look at a long-term chart of WSM, you’ll notice that the stock has dropped significantly over the past year.

In August of last year, WSM hit a high of $89.38 per share. But less than six months later, WSM was trading as low as $47.33. That’s a decline of nearly 50%!

Oops! We could not locate your form.

The decline was largely because of investor fear of retail store closings. In particular, Macy’s announced they would be closing stores in several malls across the country. With Macy’s gone, foot traffic was expected to decline, and retailers with stores in those affected malls were expected to be hurt.

Thanks to investor concern, WSM is now trading at a very attractive valuation. You can now pay just 15.4 times earnings to buy this stock. Shares haven’t traded this cheaply since 2012!

WSM PE 2016-07-14

But although shares are cheap, the future looks bright for WSM.

Not only is the company benefiting from the refinance wave, WSM is also dodging the department store problem.

Williams Sonoma has been working hard to build its internet sales. By having a strong online presence, WSM doesn’t need an anchor store like Macy’s to provide foot traffic for its locations. Today, WSM generates almost half of its revenue online, and its e-commerce platform is growing at a 27% annual rate.

WSM Internet Sales 800

Shares of WSM have been moving higher in the past two weeks. A strong stock market along with favorable housing and mortgage statistics seem to be giving investors more confidence.

Buy WSM Today, And Lock In Your 2.7% Yield

Besides the deep value and home furnishing trend, another reason to like WSM is for the dividend. The company currently pays a 37-cent quarterly dividend, which nets out to a 2.7% dividend yield.

That’s an attractive amount of income, especially considering the potential for WSM to trade higher this year.

As the company continues to grow sales, and move more of its revenue toward its online platform, I expect to see profits improve. That should give investors confidence and help send the stock higher. Perhaps we’ll even see WSM trading back close to $89 within the next 12 months!

Zach Scheidt