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Ken Zenner finally turns bullish on homebuilder stocks

By:
on Sep 28, 2022
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  • KeyBanc analyst now has an "overweight" rating on homebuilder stocks.
  • Names he likes in particular include D R Horton and Lennar Corporation.
  • Homebuilders ETF is currently down about 35% versus the start of 2022.

“XHB” – the SPDR S&P Homebuilders ETF ended about 5.0% up on Wednesday even though the National Association of Realtors said pending home sales in the U.S. were down 2.0% last month.

KeyBanc is now ‘overweight’ homebuilder stocks

Housing is having a rather difficult year as the U.S. Federal Reserve continues to lift interest rates to fix inflation.

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Still, Ken Zener (Analyst at KeyBanc) says now is an opportunity for investors to increase exposure to the homebuilder stocks.

Our recent thesis focuses on the builders’ relative outperformance to the S&P over 19 cycles since 1963. Their relative risk to return is very compelling. In the worst cycles, the homebuilders actually trough earlier the S&P.

A day earlier, home prices in the United States were reported down for the first time in a decade.

Zener reveals his favourite homebuilder stocks

Names he particularly recommends owning include D R Horton (NYSE: DHI) and Lennar Corporation (NYSE: LEN) – both down more than 30% for the year. This morning on CNBC’s “Squawk on the Street”, Zener said:

If you think about homebuilders transitioning to what will be a lighter asset model in time, they are the next two top performers on return on inventory. So, that’s where we would start.

Last week, Lennar reported better-than-expected profit for its fiscal third quarter (source). The analyst is also bullish on NVR Inc (NYSE: NVR) and has remained so since the start of 2022 when he had a dovish stance on the construction space at large.

XHB is down nearly 35% for the year at the time of writing.