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Analyst Watch: Transports and Homebuilders

US stock index futures fell Wednesday, as investors wait for a slew of economic readings. The Dow Jones, Nasdaq, and S&P 500 futures were all slightly lower.

The gains followed Tuesday's rally on Wall Street, as all major equity indices were up approximately 2 percent.

Here's what guests on today's Squawk on the Street were watching before the opening bell:

Transports: FedEx, UPS

FedEx , whose shares dropped in pre-market tradingafter its profit outlook fell short of estimates on Wednesday, is well positioned to benefit from an economic turn, according to Helane Becker, managing director and transportation analyst, Jesup & Lamont Securities. Becker has buy ratings on both FDX and UPS.

Becker's reasons to own FedEx:

  • Revenue growth will resume when economic growth resumes
  • The company is profitable even in this difficult economic environment
  • FDX has a strong cash position ($1.5 billion) and a strong balance sheet
  • Expecting pretty good earnings from FDX

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Homebuilders

A government report showed Wednesday morning that US housing starts fell more than expected in May to their lowest level in five months. Michael McGervey, president and founder of McGervey Wealth management, says investors should steer clear of homebuilders for now, saying the homebuilders are realizing difficult times are ahead and remain cautious themselves.

McGervey says the drop in the NAHB index shows how homebuilders are feeling about future sales. Complicating the matter is the homebuilder tax credit, which he says will dim prospective sales.

Toll Brothers in particular has a lot of negative cash flow because of land inventories, he says.

Thomas Villalta, president and CIO of Jones Villalta Opportunity Fund, disagrees, saying TOL, along with Home Depot carry an inordinate amount of pessimism right now. Buying a company like Toll Brothers right now is a good value he says, "like buying your winter hat in the summer."

See more of what these and other analysts and money managers have to say, and get the latest financial news. Watch Squawk on the Street every weekday morning starting at 9 a.m. ET.

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Disclosure: Becker, McGervey and Villalta do not own any of the stocks mentioned.

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Disclaimer

Symbol
Price
 
Change
%Change
FDX
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HD
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TOL
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UPS
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