Is it Too Late to Get In on Homebuilders? JPMorgan Says No!

August 9, 2012 1:23 PM EDT
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Homebuilders are higher by a whopping 56 percent year-to-date and 152 percent since the 2009 trough, so there was no doubt that JPMorgan's long call on homebuilders today was going to draw criticism, and it has. But the truth is they weren't the only analyst team that has come late to the party.

It is also true that past performance adds nothing at all to a trader's bottom line regardless if a stock is up a 100 percent or 1 percent. What matters is where the stock goes from the moment you own it. That's not to say JPMorgan's call is correct. It might be or it might not be. The point is that just because a stock is already in the stratosphere doesn't mean it is too late to buy. For example, take a look at a chart of Apple (Nasdaq: AAPL) in February of this year. Enough said.

Housing industry fundamentals will continue to improve over at least the next 18 months, thinks JPMorgan, and favorable demand/supply dynamics are expected continued strengthening of the apartment market – as well as the builders still trading at reasonable valuations.

"We are raising our price targets and upgrading three stocks to Overweight (NYSE: PHM), (NYSE: KBH), and (NYSE: BZH), which results in a total of five names in our universe with this rating (we also downgrade (NYSE: TOL) to UW based on valuation)," said analyst Michael Rehaut.

"Given the group's strong YTD gains, as well as our outlook for modest average YOY order growth deceleration in 3Q and 4Q of 25% and 23%, respectively, from 2Q’s 28%, we recommend investors (other than those with longer-term 18 month horizons) to buy more aggressively on pullbacks, as volatility should continue to impact the sector," he added.

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