Housing stocks are surging, and traders see more gains for these names

Housing stocks are on a tear this year, and it may not be too late to get in on the rally.

One large-cap homebuilders ETF, the XHB, has advanced 25 percent in 2017 and has climbed to its highest level in over 11 years. Its top holdings, D.R. Horton and PulteGroup, have gained a whopping 81 percent and 78 percent, respectively.

Instead of playing pure homebuilder stocks, investors should look at home construction stocks to capitalize on the move, said Mike Binger, senior portfolio manager at Gradient Investments.

"The homebuilding industry in and of itself is in pretty good shape right now," Binger said Tuesday on CNBC's "Trading Nation."

A worker carries lumber as he builds a new home in Petaluma, California.
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A worker carries lumber as he builds a new home in Petaluma, California.

Specifically, he cited the most recent housing starts data, which reflected U.S. homebuilding rose to a one-year high in October, likely impacted by hurricane-related construction. He is also confident about more young people moving out of their parents' houses and buying their own homes, he said. At this point, Binger would recommend buying shares of Home Depot, Lowe's and an insurance firm, First American Financial.

"We think they're big beneficiaries of these new homes going in, and that tailwind will last for several years. We also own First American Financial, a title insurance company, and they benefit with all of these new housing starts," he said.

"So don't buy the homebuilders right now, buy the halo effect there," he said, referring to the three companies, which could indirectly benefit from strong housing data.

Others aren't as rosy on the current outlook for homebuilders, given uncertainties about the tax reform plan.

Homebuilder stocks akin to Home Depot have caught a bid in the wake of hurricane devastation in the U.S., said Larry McDonald, founder of the Bear Traps Report.

However, he said, big Democratic, affluent states are likely to get "hammered" by the latest iteration of the proposed tax reform bill. This could have spillover effects on the housing market.

"Our team in Washington thinks that the Senate bill will keep much of this home interest deduction elimination in the final bill. So, net-net-net, it's a real negative for homebuilders over the next six months," McDonald said.

The XHB was higher in Tuesday trading.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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