Cramer doesn’t recommend buying homebuilder stocks because they have already had a huge run. Instead, he prefers derivative housing recovery plays. For investors who have to own a homebuilder stock, he suggests “best of breed” homebuilder Toll Brothers.
Toll Brothers designs and builds single-family detached and attached homes in luxury residential communities. It is also involved in building or converting existing rental apartment buildings into high-rise, mid-rise, and low-rise luxury homes.
Toll Brothers is not only profiting from a potential housing turnaround, but benefits from yet another trend: a thriving upper class. Unlike fast-growing countries such as Brazil, China, and India, the U.S. middle class is evaporating. In turn, the rich are spending more, while everyone else pinches pennies, Cramer said. In this environment, Toll Brothers could continue to profit. Again, Cramer would rather buy one of the indirect housing recovery plays before picking up shares of this homebuilder.