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5 Homebuilder Stocks With Upside: Analysts

Housing starts rebounded more than expected, while permits fell slightly less than forecast. Does this signal a housing market recovery—and hopes for home builders? Megan Talbott McGrath, home builder analyst at Barclays Capital, and Paul Puryear, director of real estate research at Raymond James, discussed their sector outlooks. (See their stock picks, below.)

“We don’t think the home builders are going to build a lot of new homes, but we think there is upside from these levels,” Talbot McGrath told CNBC.

“It will be a good year, and a better year for builders in 2010 than it was in 2009.”

Talbot McGrath forecasts a 15 to 20 percent increase in new home sales this year.

“It appears as if short sales are going to increase in the future—a few banks have said they are moving towards short sales and it will help clear up some inventories quicker,” she added.

“We think the government stimulus is going to go away at some point, and employment is key and consumer confidence is the key.”

In the meantime, Puryear said some of the homebuilder stocks have room left on the upside.

“There’s some overhang issues out there, absent government support, that are going to hold this market back quite a bit—but that can be overridden by job growth and general economic factors, so that’s the key for us,” he said.

Recommendations:

Puryear Likes:

Lennar

KB Home

Ryland Group

MDC Holdings

Talbott McGrath Likes:

Lennar

Ryland Group

D.R. Horton

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Disclosures:

No immediate information was available for Talbot McGrath or Puryear.

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Disclaimer

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