The Real Story: Don't Fear the Beazer

Contrarian investors know what Albert Brooks' character ultimately learned in Defending Your Life: To succeed, you need to stare down your fears. In the stock market, that means keeping the faith in your investing thesis -- even (or especially) when everyone else says you're wrong.

Which brings us to today's subject: homebuilders. There's a lot of fear regarding the sector, but a bullish contrarian case can be made for the group, and Beazer Homes(BZH Quote - Cramer on BZH - Stock Picks) in particular.

The Consensus Story

Interest rates are rising, making mortgages more expensive. That can particularly affect first-time buyers -- an important Beazer customer. Housing inventories are up, new-home sales hit their lowest level since 2003 in February, and, generally, the previously white-hot housing market is cooling; that will result in slower earnings growth for homebuilders.

The Real Story

Contrarians believe bad news is likely priced into Beazer (and most of the other homebuilders); as a result, value investors are picking up shares. The technical picture is sound and the stock is very heavily shorted, making it ripe for a short squeeze.

What makes Beazer attractive from a contrarian point of view is that the media is ringing the death knell of the real estate market. As I type this, CNBC is running a segment on the riskiest markets. But it's not only the media sounding the alarm bells.

According to the PMI Mortgage Insurance's (PMI Quote - Cramer on PMI - Stock Picks) U.S. Market Risk Index, 48 of the nation's 50 largest metropolitan areas face a greater risk of declining home prices this quarter vs. last. PMI anticipates a gradual cooling of the housing market as opposed to a crash.

So why on earth would an investor consider Beazer or any homebuilder?

Regarding homebuilders, "public equity markets have already factored in what could only be described as a macro disaster," says Brad Ruderman of Ruderman Capital Management in Beverly Hills, Calif.

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