Is it time to start buying homebuilder stocks yet?

By:
on May 2, 2022
  • KeyBanc's Ken Zener warns against buying the dip in the homebuilder stocks.
  • He defends his bearish outlook on homebuilder stocks on CNBC Power Lunch.
  • The SPDR S&P Homebuilders ETF (XHB) is now down nearly 30% for the year.

The SPDR S&P Homebuilders ETF (XHB) is now down nearly 30% for the year, but Ken Zener says investors should continue keeping away from the homebuilder stocks.  

Zener’s bearish case for homebuilder stocks

The research analyst at KeyBanc Capital Markets quoted historical data to explain why he sees more downside in the construction sector. This afternoon on CNBC’s “Power Lunch”, he said:

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16 out of the last 18 cycles, stocks fell about 30% that did not include a recession. We’re skewing towards trends we saw in first half of 1970s. It’s not priced in because homebuilder stocks don’t bottom until the end of the credit tightening cycle.

Zener is underweight a series of notable names in this space, including Toll Brothers and KB Home that reported weaker-than-expected results for its fiscal Q1 in March.

Zener has more reasons to dislike homebuilder stocks

Other reasons he cited for his bearish outlook on the U.S. homebuilder stocks include stagflation and ample supply. Speaking with CNBC’s Kelly Evans, the KeyBanc analyst noted:  

I think recession and stagflation is starting to come in. The bullish housing narrative is too reliable on adjectives like tight supply. Last week, we put out a report showing highest listings since 2005. That means more supply is coming on.

The one name that Zener is “overweight” in this sector is Reston-headquartered NVR Inc with a price target of $5,100 a share or roughly 15% upside from here. His outlook on homebuilder stocks starkly contrasts Bill Smead’s.

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