Bet on housing. 5 best ideas on Street this week

Published Sat, Apr 18 20158:09 AM EDT

CNBC Pro highlights below the five best strategy or economic notes that came across our desk this week. The excerpts are from the strategists whose work we find to be particularly insightful. Jonathan Golub, chief U.S. market strategist, RBC Capital Markets (April 13): "Household formation tends to be driven by workforce growth, rather than population, over longer periods. Demographic trends should result in weaker formation going forward than experienced in the past. This is likely to be a secular headwind for housing activity...Despite these headwinds, we anticipate a near-term pickup in housing activity and housing-related stocks for five key reasons: The recent fall in the unemployment rate and a pickup in wage growth have driven household formation higher, as shown below. The pickup in formation is manifesting itself in falling inventories and rental vacancy rates, rather than increased supply. This trend is likely to reverse. Housing remains quite affordable on the back of low mortgage rates and a moderation in home price appreciation. Homebuilder and consumer sentiment surveys for the housing market have been steadily increasing and are near post-crisis highs. Growth expectations and earnings revisions for the homebuilders, building products, and home improvement sub-groups are all quite positive." Thomas J. Lee, Fundstrat Global Advisors (April 14): "Visibility to improve globally... Favor Cyclicals" "Long consumer in 2015: investors are overlooking the significantly improving conditions for consumers in 2015: (i) credit score reset which is preventing 10% of households from accessing credit (see slide 32); (ii) bank lending standards easing which limits another 20% of households (see slide 33); (iii) stronger labor markets; (iv) lower gasoline and pent-up household formation (see slide 19 and slide 36). And as we have written in the past, the US economy is 4X more long housing than it is short oil—hence, housing is way more important." Tom McClellan's The McCellan Market Report (April 15): (via Investors Intelligence) "The bull market for stocks is not done yet, but the end is in sight, due to arrive between early July and early August 2015. There should be a memorable decline from that top into early 2016. We will firm up that forecast as it gets closer, but for now the mission is to continue riding the uptrend. Look for a brief uptrend interruption for a bottom due April 20-22, but a resurgence upward into the April 28-29 FOMC meeting. T-Bond yields should start rising (prices falling), now that the COT data show commercial traders going strongly to the net short side. Gold should continue to do well for a while, especially when priced in euros, thanks to the ECB's QE. But gold still has a date with a major cycle low due in August 2015." Russ Koesterich, global chief investment strategist, BlackRock (April 13): Despite last week's strength, U.S. stocks still face two lingering issues: weak earnings and expensive valuations. Bottom-up estimates for S & P 500 company earnings have come down 8% over the past three months. At the same time, the S & P 500 is trading at roughly 18.5 times trailing earnings, the highest since late 2009 when corporate earnings were still depressed...In this environment, we would still favor equities over other assets, but focus on pockets of value. One such area is Asian equities, both developed markets like Japan, as well as emerging markets. Japan continues to benefit from reasonable valuations, an accommodative central bank and increased equity buying by pension funds. Not only has the market dramatically outperformed its international peers year-to-date—up around 14%—but a stable yen has meant that returns have not been significantly eroded by a cheapening currency. We are also seeing the rally in China's A-Shares (traded in Shanghai, but difficult for non-Chinese investors to access) extend to other markets, including the more accessible China H-Shares (traded in Hong Kong), India and South Korea." Brian Belski, chief investment strategist, BMO Capital Markets (April 17): " Energy Bottom Is a Process, Not a Race" "Energy stocks have been on a tear over the past few weeks and this has certainly gotten many investors excited. The obvious culprit has been the rebound in crude oil. After collapsing to a more than six-year low of ~ $43, crude oil has risen over $12 since mid March. Naturally we have received many questions from clients given that we currently recommend an Underweight position for the Energy sector. Unfortunately, the way we see it is that nothing has really improved from a macro and fundamental standpoint, both of which remain quite challenging for the sector, in our view. Therefore, we remain comfortable with our cautious sector stance." Read More Top 5 stocks of the week and how to trade them

Stephanie Dhue | CNBC

CNBC Pro highlights below the five best strategy or economic notes that came across our desk this week. The excerpts are from the strategists whose work we find to be particularly insightful.