Housing stocks are getting crushed.
Lennar and KB Home fell more than 2 percent Wednesday after Credit Suisse downgrades, along with Home Depot and Lowe’s. The firm was particularly bearish on the group given weak housing starts data and rising interest rates.
Erin Gibbs, portfolio manager at S&P Investment Advisory Services, said the group’s low valuation may appear cheap to investors, but she’s raising a warning about homebuilders’ next move.
“They’re trading at seven times forward earnings, which sounds super cheap and a great entry point, but they’re just on a steady decline. We haven’t seen any signs of stabilization,” Gibbs said Wednesday on CNBC’s “Trading Nation.”
“When you look at the fundamentals, the profit growth for next year has been cut by one-third just in the last six months. That’s a big drop,” she said, noting headwinds like the rising cost of materials and weakening home sales.
From a technical perspective, the stocks could see a bounce, but perhaps just in the short-term, said Miller Tabak equity strategist Matt Maley. Rising interest rates caused Maley to go negative on the group in February.
Wall Street Grows Increasingly Bearish on Housing
Bank of America Merrill Lynch downgrades homebuilder stocks Toll Brothers, PulteGroup and NVR and lowers its homebuilding estimates for 2018 and 2019.
- Analyst John Lovallo downgrades Toll Brothers, PulteGroup and NVR to neutral from buy and trims his price targets on them.
- The iShares U.S. Home Construction ETF (ITB) is down more than 11 percent for the month.
- Credit Suisse downgraded the homebuilders and housing-related stocks earlier in the week.