All Aboard for the Homebuilder 'Hope Trade' (LEN) (DHI) (PHM) (XHB)

Analysts at BofA/Merrill Lynch are the second firm in as many days to discuss the 'Hope Trade' in homebuilders. Analysts led by Michael Roxland note that homebuilder have outperformed the S&P 500 76% of the time from November-January since 1982. On average, the relative outperformance of the stocks during this time has been 14.3%.

The phenomenon is the so called the 'Hope trade,' implying investors buy the homebuilder stocks each winter in anticipation of the spring selling season and hold them until the end of January.

The firm said it is not content to rely solely on "Hope," and dug deeper. With homebuilders down 23% YTD, the firm looked at if past relative stock underperformance from February - October had any impact on relative outperformance from November - January. They also looked at positive surprises in Housing Starts (HS) and New Home Sales (NHS) data in the months leading up to (and during) the winter.

They found that previous underperformance does not have much of an impact on subsequent stock outperformance. That said, positive surprises versus consensus relating to September HS and October NHS exhibited some of the strongest relationships associated with homebuilder outperformance in the winter months. "Our analysis shows that the homebuilders have outperformed the market during the winter in 75% of cases where September HS had a positive surprise and in 78% of cases where October NHS had a positive surprise."

The firm notes Lennar Corp. (NYSE: LEN) performed best in their coverage during November - January, outperforming in 88% of instances since 1982, with an average relative return of 16%.

Other housing related stocks and ETFs:

Standard Pacific (NYSE: SPF), Beazer Homes (NYSE: BZH), Ryland Group (NYSE: RYL), D.R. Horton (NYSE: DHI), KB Home (NYSE: KBH), PulteGroup (NYSE: PHM), Hovnanian Enterprises Inc. (NYSE: HOV), Toll Brothers, Inc. (NYSE: TOL), Meritage Homes Corp. (NYSE: MTH), SPDR S&P Homebuilders ETF (NYSE: XHB).

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