Monday, March 12, 2012

Housing: A brewing bull?

Mike CintoloFor the past ?ve years, no sector has performed as poorly as the housing group. But could a bull market be brewing in the sector?

We think it�s fair to say that no sector (except for possibly the ?nancials) is as despised as housing-related stocks. And for good reason, as they�ve truly been the dog�s dinner.

�So why are we writing about housing stocks?� Because, slowly but surely, we�re seeing signs that the sector has turned the corner. �

Don�t get us wrong�we�re not calling for a new housing bubble or even a major boom. But based on the fundamentals, even a little improvement would result in huge growth. �
Combined with the massive cutbacks by housing-related ?rms, any sizable pick-up in demand would fall right to the bottom line.

And we�re seeing actual signs of improvement�during the last four months, year-over-year housing starts were up 10%, down 5%, up 8% and up a big 21% in the most recently reported month.� September saw the largest number of housing starts (658,000) in 17 months. �

And perhaps most important, individual homebuilders are beginning to talk encouragingly, with cancellations down, prices up and stable-to-growing backlogs during the last quarter or two.

Last but not least are the charts, and we�ve been impressed with the powerful rebounds seen in many names since the October bottom, and on big volume to boot. �

We like what we�re seeing in the charts of homebuilders like Toll Brothers (TOL), Lennar (LEN) and D.R. Horton (DHI) -- not just their multi-week upmoves but, more impressively, the big volume and other signs of major accumulation. �

Lennar, for instance, recently notched seven up-weeks in a row�the ?rst time it�s accomplished that feat since 2004.

Even Home Depot (HD! ) has se en its stock hit ?ve and-a-half year highs in recent weeks on big volume, while its RP line surges.�

Now, turnaround-type stocks will never be the core of our Model Portfolio; but iwe think that after a six-year meltdown, housing stocks could be coming back into favor. It�s something to watch in 2012.

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