These Stocks Could Be Too Hot

Tickers in this article: BX WY
NEW YORK ( TheStreet) -- If you feel the way I do about the housing recovery you're happy as all get-out to see both new and existing home sales rising almost monthly. Homebuilders are feeling more confident as well and new home construction is buoyant.

Builders began construction in December 2012 at a seasonally adjusted rate of 954,000 new homes. That enthusiastic number is nearly double the rate hit during the Great Recession low reached in April 2009. On Wednesday the Commerce Department reports housing starts for January 2013.

If that's not enough good news, after a three-day weekend the stock market indices hit new highs across the board, especially new all-time highs in small and mid-cap stocks.

Still, while many are still quite optimistic about the housing recovery, the majority of economists anticipate the rate of new construction to have ratcheted downward a bit. The question for stock investors is whether that will cool down the home-building related stocks such as Weyerhaeuser (WY) .

WY has been one of the darlings of the sector and has risen dramatically over the past year, as the following chart demonstrates flamboyantly. Along with the share price I've included the diluted quarterly year-over-year earnings per share so you can see what's driving the price trend.

WY ChartWY data by YCharts

One of the analysts to whom I listen as often as possible is Jim Cramer. As the markets continued to move higher on Tuesday, Cramer and the co-portfolio manager of Action Alerts PLUS, Research Director Stephanie Link, shared some insightful comments on WY, which is a holding in the chartiable trust.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust -- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

Among other commentary they wrote that WY "...is a key play on housing ... because management has done a great job positioning the company for positive operating leverage given its past restructuring efforts.


"As a top Pacific Northwest timberland company (25% of sales), it is in terrific position to benefit from the turn in housing due to the declining supplies from British Columbia, improving Asian export demand and limited exposure to paper producing regions like the South and Northeast.

"In addition, its timberlands are the most productive and valuable among its peers because of its regional exposure in the Pacific Northwest and its wood products business (40% of sales) levers its more than the competition."

Any potential or current shareholders of WY love those reasons for ownership.

My caveat is that from both a fundamental perspective (shares selling at 23 times forward, one-year earnings) and from a technical viewpoint, WY may be due for a correction. As recently as Dec. 31, and admittedly connected with the "fiscal cliff" scare, shares traded near the $27 level.