Wait to Sell the Homebuilders

This column was originally published on RealMoney on March 14 at 3:28 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

How important is this rally in the homebuilders? Can they keep moving up? Are they coiled springs?

Frankly, I don't know. They got to trading at 5-6 times earnings. They can now go up to 8 times earnings, but I don't believe that can happen unless the Fed tips its hand.

To me, it is a rally to sell, but not Wednesday; make it Thursday. If you are a homebuilding analyst, you have to be thinking, is it all clear? Someone might want to go positive tomorrow off the DR Horton ( DHI) action and pull the trigger, and you get day two of the rally. When you put that in the context of what may be an explosive week, then you end up with something more than a one-day trade.

If you believe there is more than a one-day trade here, here are some stocks worth considering:

1. Countrywide Financial ( CFC): Didn't rally as much as the other financials off the North Fork ( NFB) deal but should have, given the breadth of product. I believe it didn't because of all of the publicity about the slowdown in home equity loans, but that's why the stock trades at 8 times earnings and not 10 times earnings.

2. Accredited Home Lenders Holding ( LEND): Looks to me like it could challenge its old high. Here's a stock that sells at a price-to-earnings ratio that is literally half its growth rate with a terrific stock that has handled the higher rates magnificently. Shouldn't that stock be more than $50?

3. St. Joe ( JOE): Here's a homebuilder that has been clocked, beaten beyond all recognition. It is the classic "second-day" homebuilder, in that it goes up the day after the other homebuilders rally. I would pull the trigger to buy some now.

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