Max, nice article. Homebuilders are getting attention. Smart Money also had a write-up on the sector:
Home building stocks, which got spooked by a threat of higher interest rates a month ago, are surging today after analyst Robert Curran of Merrill Lynch, a Wall Street Journal All-Star, spoke highly of the stocks. "As a group, the stocks are down 19% from their highs -- this selloff is way overdone," Curran says.
Behind Curran's bullishness is his conviction that interest rates are not going higher. "Our economists are seeing a moderation in real GDP this year, so the Fed will have less reason to raise rates," he says. At the same time, mortgage rates are 90 basis points lower than a year ago, which will continue to fuel home sales.
In turn, home builders may become one of the strongest economic sectors, he says. The group also has a hefty order backlog and strong earnings growth ahead. Another plus: Builders have no Asian exposure.
Curran especially likes Lennar, a member of our "Where to Invest in 1998" portfolio. He rates it a near-term Accumulate because of its concentration in California. Lennar's growth will last longer than its peers' because the real estate recovery in that state is only 2 years old, compared to 7 years for the rest of the country. "There's catch-up to be had here," Curran says.
Curran is also enticed by the valuations in the group, which are about half of the S&P 500's multiple on this year's earnings forecasts. Merrill continues to recommend D.R. Horton, Toll Brothers, Centex (CTX) and Pulte (PHM), all rated near-term Accumulate. |
