Ken Zenner finally turns bullish on homebuilder stocks

on Sep 28, 2022
  • 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.

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“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

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

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

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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:

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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.


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