Zacks Analyst Blog Highlights: Sherwin Williams, La-Z-Boy, USG, Weyerhaeuser and Berkshire Hathaway

CHICAGO, Feb. 24, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Sherwin Williams (NYSE: SHW), La-Z-Boy (NYSE: LZB), USG (NYSE: USG), Weyerhaeuser (NYSE: WY) and Berkshire Hathaway (NYSE: BRK.B).

(Logo:  http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Wednesday's Analyst Blog:

Housing Prices & the Economy

The level of activity in used home sales really is not that important in isolation. It is just the transfer of an existing asset, and does not add a lot to economic growth. The one exception to that are realtors commissions. Indirectly, it can help as people will often remodel and redecorate a "new for them" house. That can stimulate some sales for paint companies like Sherwin Williams (NYSE: SHW) and perhaps it is good for furniture firms like La-Z-Boy (NYSE: LZB), but it pales compared to the economic activity generated by a new home sale.

New homes not only need new paint on the walls, but they need the walls. That means lots of business for wallboard firms like USG (NYSE: USG), timber firms like Weyerhaeuser (NYSE: WY) and roofing and insulation firms like the Johns Manville division of Berkshire Hathaway (NYSE: BRK.B). It also means that those firms have to hire more workers, so the employment effect of new home sales goes well beyond the roofers and carpenters actually on the jobsite.

Where used home sales are important is in relation to the inventory of houses for sale. That will influence the future direction of hosing prices. Used home prices are extremely important. As used home prices fall, more and more people find themselves underwater on their mortgages. As long as a homeowner has positive equity in their house, the foreclosure rate should be zero. After all, it is better to simply sell the house and get something for it, rather than simply let the bank take it and get nothing for it.

The more people under water, and the deeper they are, the higher foreclosures and strategic defaults are going to be. A strategic default is when someone has the cash flow available to continue to make his mortgage payment, but simply decides not to, since paying is a just plain stupid thing to do from a financial perspective. If you have a house that could only sell for $150,000 n the current environment, and you owe $200,000 on the mortgage, in effect you have the option of "selling" the house to the bank for $200,000 simply by stopping writing the checks.

Of course that will be a hit to your credit rating, but $50,000 is probably worth a bit of a tarnish on your Fico score. If the difference is only $5,000, then the hit to your credit score makes less sense, and there are lots of non-economic factors (a house is, after all, a home, not just an investment) that come into play.

In January, inventories fell by 5.1% to 3.38 million, but remain above the year-ago level. That puts the months of supply at 7.6 months, down from 8.2 months in December, and as high as 12.5 months in June. While moving in the right direction, it is still a pretty high number.

A "normal" months of supply is about six months, and during the housing bubble four months was the norm. Also, the inventory numbers are not seasonally adjusted, even thought here is a seasonal pattern when they tend to decline in the winter (especially around the holidays) and then increase in the spring.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5514.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5516

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment

Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter:  http://twitter.com/ZacksResearch

Join us on Facebook:  http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

SOURCE Zacks Investment Research, Inc.