A Special Note from Michael: Listen, I’m about to speak you about housing. A huge hot button right now. But investing on the right side of hot button topics is the best way to make money in the market. That’s exactly what I cover in a recent presentation you can get to right here.
“Sell Me a Home, Please”
My daughters Jordan and Kendall literally could not have picked a worse time to look for an apartment. Turns out the massive boom in home prices amid a housing shortage is filtering down to rentals.
It’s one thing to read about the nation’s historically hot housing market. It’s a completely different matter to actually be trying to find a place to live in this crazy market. My daughters’ apartment hunting became a deadlock as one apartment after another got snapped up in as little as two hours.
Many prospective first-time homeowners are getting priced out of the market. Even when they have the finances, there’s just no supply. For Montana resident Sean Hawksford, a young man with a successful construction business and a pregnant wife took to the streets with cardboard signs that read “PLEASE SELL ME A HOME.”
With all this, you can see why real-estate agents are turning to AI for help.
The S&P CoreLogic Case-Shiller National Home Price Index released Tuesday rose a stunning 16.6%. It’s the highest annual rate of home price growth since the index began in 1987.
Even the most seasoned real-estate pros across our $34 trillion housing market are at their wits end. Meanwhile, the smart ones are doing what I would do-they’re tapping AI as a tech tool.
Today, I have a double play. Two stocks that cover both sides of the housing market: real estate and property insurance.
The Future of the Housing Market Is AI
A recent report from the National Association of Realtors says the US now needs 5.5 million units of new supply to catch up to demand.
Industry analysts say it could take as much as five years to work through the backlog.
No wonder realtors are jumping on the AI bandwagon. Doing so allows them to comb through terabytes of data with just a few keystrokes.
And a company I told you about back on March 12 is leading the AI real-estate trend. When you think about it, that move makes a lot of sense for a company already focused on ecommerce.
In that regard, Zillow Group Inc. (ZG) remains the undisputed leader in this space.
The company’s name has almost become a verb that describes the act of searching for homes to buy, much like “to Uber” means to get a ride share, or “to Google” means to search the Internet.
In fact, more people use Google to search for “Zillow” than for “Real Estate.” But there’s much more to this company than brand awareness.
Take what’s happening with its Zestimate tool, which estimates a home’s market value. The firm recently said this highly watched tool is powered by a neural network that learns on its own.
Through the power of AI, the platform takes into account hundreds of millions of data points to come up with an estimated market value.
I’m still banking on Zillow and will continue to recommend it. However, there’s a whole other side to the housing market that Zillow can’t cover-property insurance. Luckily, I have a play for that too.
Insurance Meets FinTech
Don’t scoff, insurance is a crucial part of the real-estate purchase process. You can’t get a mortgage without proof of insurance.
The company I have in mind was founded in 2015 with the aim of bringing property insurance into the digital age.
Its approach parallels other FinTech companies in other areas of finance: the firm uses a slick app and website that’s powered by AI and Big Data models to offer a quick and simple interface.
The company and app in question is Lemonade Inc. (LMND). It packages all the headache of insurance into a user-friendly app. This is particularly attractive to those under 35.
That’s a hugely lucrative market for insurers, as that’s about the age when both income and insurable property start growing.
By hooking them on the ease of its app at the beginning of their insurance journey, Lemonade is building a quickly growing and loyal following.
The firm’s use of AI also lets it cut costs and lower prices, often undercutting the bigger and more established names in property insurance.
Take a Look at This Upside
Of course, each new client feeds Lemonade’s AI and Big Data models with more information, making them even more powerful.
This virtuous circle is very apparent in the numbers. From the first quarter of 2019 through the first quarter of this year, Lemonade’s customer base grew 50% to almost 1.1 million.
Meanwhile the value of active insurance policies jumped 89% to $252 million.
Now, despite this stellar expansion, or more likely because of it, profits have been weak of late.
But Lemonade is a quintessential growth firm that’s plowing revenues into building out a massive franchise. And here it is passing a key investment test with flying colors.
Over the past three years, the firm has grown sales by an average 171%. At that rate sales double every four months.
If per-share profits advanced by 20% that rate, we’d see an average of 34.2% for a double in just a tad over two years. To be conservative, let’s scale that back to four years.
This is the type of high-octane stock that can really put your portfolio onto the fast track.
Cheers and good investing,
Michael A. Robinson