“We suggest selling our homebuilders ETF, SPDR S&P Homebuilder ETF (XHB). Although sector data is encouraging and we believe the industry is still in the early stages of a multi-year recovery, so many people have been looking for a recovery in housing stocks for so long, the stock prices of U.S. homebuilders have gotten ahead of themselves.
“Indeed, analysts estimate the industry has to build 2.1-2.6 million new homes in 2016 in order to justify current valuations, compared to annual pace of roughly 365,000 this year and 1.3 million new homes in 2005. The industry has to not only surpass the pre-crisis peak, it has to do it in convincing fashion and in a much tougher lending environment. In other words, it’s not that we don’t like the industry immediate future; it’s that we think stock prices have already discounted it. XHB did phenomenally well for us in 2012, rising 28 percent since our recommendation in February, and we’re not above booking a strong profit when one exists. We’ll return to XHB if prices come off a bit. Sell.”
- Steven Lord, The Cash Cow, January 2013