3 Homebuilding Stocks Poised For Further Gains In 2021: D. R. Horton, KB Home, And Lennar

Aerial View of Buildigns

The market finished lower Friday after hitting record highs earlier in the week as investors have their mind on additional stimulus measures. In the meantime though, the homebuilding industry has returned to strength after both Fed Chair Powell and Treasury Secretary Nominee Janet Yellon indicated their preference for low rates. 

While investor focus is currently on fiscal stimulus to help drive the economic rebound, one bright spot in a weak economy has been homebuilding. Homebuilder stocks saw strong returns from the spring to fall last year due to the flight to the suburbs and low mortgage rates. While these stocks saw recent weakness due to concerns over rising rates, the Fed’s commitment to near-zero rates has removed that obstacle, in my mind. That’s why I am recommending homebuilding stocks such as D.R. Horton, Inc. (DHI - Get Rating), KB Home (KBH - Get Rating), PulteGroup, Inc. (PHM - Get Rating).

But before I get into evaluating those stocks, let’s take a look at the markets over the past week.

Market Commentary

Stocks rose Tuesday after investors came back from the long holiday weekend optimistic about support for a large stimulus bill. Adding to the mix was Janet Yellen’s nomination for Treasury Secretary. She testified in her confirmation hearing that she favors significant fiscal action to help support the economy. All three major indexes finished the day higher.

All three indexes reached record intraday and closing highs on Wednesday, as investors looked ahead to the President-elect’s plans to stimulate the economy. The S&P 500 and Nasdaq both finished Thursday at record closing levels, with the Dow Jones Industrial Average just coming up short. A future stimulus plan was again on investor minds. Stocks finished lower today due to more concerns over the pandemic and whether a substantial stimulus plan would pass through Congress.

Market Outlook

While the market is looking ahead to a stronger economic recovery, one industry that is already performing well, and should continue to, is housing. As I mentioned earlier, homebuilding stocks were on a tear from March 23rd to October 15th. The iShares U.S. Home Construction ETF (ITB) gained 149.7% during that time. In the second half of October, shares plunged as rates started to increase. Since then, homebuilding stocks saw mixed returns until two weeks ago, when they returned to their ascent.

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