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4 housing stocks to watch on strong data

Some home-builder stocks may still struggle despite Tuesday's better-than-expected housing data, CNBC "Fast Money" traders said.

Housing starts surged 20.2 percent to a seasonally adjusted annual pace of 1.14 million units, the highest since November 2007, the Commerce Department said Tuesday. The number came on the heels of a string of disappointing consumer numbers in recent weeks.

Read MoreUS housing starts, permits surge in April

Investors buying into the housing sector on expectations for continued recovery should look at Toll Brothers, which has already surged this year, said trader Steve Grasso.

"You want to play housing, you stick with Toll," he said.

Toll Brothers shares have climbed more than 10 percent this year.

Home Depot cashier at a Miami store.
Getty Images
Home Depot cashier at a Miami store.

Home Depot

Home improvement retailer Home Depot reported better-than-expected quarterly earnings and revenue Tuesday, but shares fell nearly 2 percent on the day. Trader Dan Nathan echoed investor pessimism.

"To me, you've got a lot of financial engineering here. You don't have a lot of sales growth," he said.

Read MoreSolid Home Depot earnings sign of consumer shift: Analyst

Home Depot reported 7.1 percent comparable-sales growth in the quarter.

KB Homes

KB Home shares popped more than 2 percent on Tuesday, but don't expect an extended climb, Nathan said. The stock has dropped nearly 9 percent this year.

Nathan said he sees a "massive downward trend," adding that investors should not "chase" the stock.

Sherwin Williams

Building materials company Sherwin Williams could reach a "blow-off top" if the housing markets sees a sustained recovery, said trader Brian Kelly. The stock has limited downside, setting up "a nice risk-reward," he contended.

The stock closed slightly higher, above $292 per share, on Tuesday.

Disclosures:

Dan Nathan

Dan Nathan is long GOOGL June call fly, TWTR, BBRY June calls, TLT June call butterfly, SO and INTC long May /July put spread. He is short SO Aug call. Today, he sold to close DDD Aug calls.

Steve Grasso

Steve Grasso is long AAPL, BAC, BTU, DD, EVGN, MJNA, PFE, T, TWTR and GDX. His firm is long TWTR, BBBY, BK, AMZN, RIG, OXY, NE, NEM, TSE and VALE. His kids own EFG, EFA, EWJ, IJR and SPY.

Brian Kelly

Brian Kelly is long DXGE, BTC=, BBRY and U.S. dollar. He is short Australian dollar, Canadian dollar, euro, yen and yuan. He is short WTI crude oil. Today, he shorted WTI crude oil.

Karen Finerman

Karen is long BABA, BAC, C, FINL, FL, GILD, GOOG, GOOGL, JPM, M and KORS. She is short SPY. Her firm is long ANTM, AAPL, BAC, C, DIS, FBT, FINL, FL, GLNG, GOOG, GOOGL, GPS, IBB, JPM, M, KORS, PLCE, SUNE, URI and XBI. Her firm is short IWM, SPY and MDY. Karen Finerman is on the board of GrafTech International. Today Karen's firm sold M calls and Karen sold some M.