GO
Loading...

Most homebuilders are ‘not investable’ right now: Pros

Monday, 9 Sep 2013 | 11:45 AM ET
How to play the homebuilders space: Experts
Monday, 9 Sep 2013 | 10:48 AM ET
Megan McGrath of MKM Partners and Robert Wetenhall from RBC Capital Markets disclose their top housing plays.

In a rising interest rate environment and market uncertainty on future Federal Reserve actions, investors should be particularly cautious when it comes to homebuilder stocks, two market pros told CNBC's "Squawk on the Street" Monday.

"The builders are pretty much a one-trick pony these days," said Megan McGrath, senior homebuilder analyst at MKM Partners. "They're really trading off of rates. If you have a view on rates that you really like, you can trade these but otherwise I don't think they're investable right now."

(More real estate: Fannie, Freddie making billions—why shut them down?)

McGrath said that her firm has been "cautious" on the group for most of 2013 but has become increasingly so with rates rising.

"Uncertainty is no good for these stocks, and until we get some certainty around the taper and around mortgage rates, I think they're just going to trade up and down and probably end up in the same place," she said. "They're tradable but not necessarily investable."

For homebuilders, "the impact of rising interest rates will lead to slack demand, and that's going to translate into slow earnings growth," said Bob Wetenhall, managing director at RBC Capital Markets.

Wetehall advised investors to move away from the group in favor of building-product companies, which he said offer better risk-adjusted returns. He suggested Fortune Brands, Masco Brands and Mohawk Industries because they participate in both new residential construction and increased remodeling activity through home improvement stores.

(Related: Home prices push past rising rates, says report)

Wetehall said his firm is "particularly enthusiastic" about stocks in that position and thinks they have a "strong tailwind" through year-end.

One name that McGrath likes is Toll Brothers, because it is primarily involved in higher-end housing, where buyers are less sensitive to interest rates.

—By CNBC's Paul Toscano. Follow him on Twitter @ToscanoPaul and get the latest stories from "Squawk on the Street"

Disclaimer

  Price   Change %Change
TOL
---
FBHS
---
MAS
---
MHK
---

Contact Construction

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More