This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why I Like Homebuilders This Fall -- But Hate the ETFs

And it's worth noting that while housing starts have rebounded, they're still far below their historic averages. In fact, they're still lower than they were at anytime between 1959 and 2008. Even in a recession, the housing market can absorb more inventory than is coming online right now.

Let's not forget that interest rates are near zero, inflation's tipping 2.2%, and debt-to-disposable income here in the U.S. is now at one of the lowest rates of all OECD countries. So banks have lots of free cash, but they're getting penalized for holding onto it, and there are a bunch of borrowers who are a whole lot more credit worthy than they were just a few years ago. There's probably a way to connect those dots.

Have Homebuilders Rallied too Far?

A lot of folks are worried that homebuilders have already rallied too far. I understand the concern, but I don't buy the logic.

Here's the bottom line: Who cares if a stock is "more expensive" today than it was yesterday as long as it keeps getting more expensive until you sell it?

From a relative strength standpoint, the homebuilder rally isn't showing any signs of fizzling out yet. In fact, relative strength lines for many homebuilders have been accelerating in the last month or two. Statistically, that indicates to higher ground yet to cover in 2012.

So which stocks make sense to buy?

>>5 Big Stocks Set to Slingshot Higher

I like the big ones, namely Toll Brothers (TOL), Lennar (LEN), and NVR (NVR). For starters, the big ones have a lot of eyes on them. That's important -- maybe more important than you'd think.

In the wake of the "Great Recession," suddenly all of the new homes and empty land sitting on builders' balance sheets had to be written down substantially -- and the persnickety auditors at Big Four accounting firms were going over those asset lists with a fine-toothed comb. Big is important for two reasons: it means that more eyes are on the balance sheet and it means that accountants have a higher volume of transactions to use to value the rest of these firms' assets.

2 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,086.63 -26.91 -0.16%
S&P 500 1,987.01 +3.48 0.18%
NASDAQ 4,473.6970 +17.6810 0.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs