Record-low interest rates and a drop in the number of foreclosed homes that are on the market mean that the homebuilding sector is poised to make money, says Robert Wetenhall of RBC Capital Markets. Investors can do well with just a few well-chosen homebuilder stocks, he says.
Wetenhall likes Lennar (NYSE: LEN; Price: $36.89) because of its asset base and “exceptionally competent management” and KB Homes (NYSE: KBH; Price: $13.35), because it resolved its operational issues and still is trading at a discount.
Wetenhall says you should keep a sharp eye on gross-domestic-product growth and unemployment. If the former drops to 1 percent or if joblessness rises above 8.5 percent—at press time, they were at 1.7 percent and 8.1 percent, respectively—homebuilder stocks likely will face difficulties, he says.
You should consider homebuilder stocks only if you plan to hold on to them for at least 2 years, he says.