Sood placed “holds” on KB Home,Lennar , and PulteGroup , while his top picks are Toll Brothers and D.R. Horton.
“The basis for our recommendations is viewing the homebuilders as land funds,” Sood said. “The ones with the better balance sheets will have more money to invest into a recovery and will therefore have greater volume and EPS growth.”
He cited Toll Brothers as one of the most interesting stocks to watch, noting that its customer base is buying much more expensive homes — a demographic that tends to be more sensitive to stock market volatility, according to a recent Citigroup report.
Despite expectations of market volatility in the back half of the year, Sood said that Toll Brothers’ momentum had continued into June. No slowdown in housing momentum, even at higher ends, is a positive sign for the recovery.
—By CNBC.com’s Madeline Laskoski
Additional News: Strong Housing Numbers, Still Slow Recovery
Additional Views: Homebuilders Face Rocky Road
CNBC Data Pages:
Lennar, Pulte, and Toll are clients of Deutsche Bank. Deutsche Bank and/or its affiliate(s) has received noninvestment banking related compensation. Nishu Sood does not personally own Lennar, Pulte or Toll.