Homebuilder stocks went out of favour this year as the Fed moved to aggressively lift rates.
But now that much of it is in the rearview mirror, it’s a suitable time to go shopping in this space, says Stephen Kim – Head of Housing Research at Evercore ISI
Kim recommends owning a small-cap stock
A name that particularly pops out to him is Meritage Homes Corp (NYSE: MTH) that’s down more than 20% for the year at writing. Explaining why on CNBC’s “Power Lunch”, Kim said:
When a group like the homebuilders comes into favour, a lot of the times, it’s some of the smaller cap names that get a little overlooked and they can actually have bigger moves.
Shares of this real estate development company are especially attractive as they are trading below their book value, the analyst added.
He’s bullish on the construction space in general for 2023.
Kim sees massive upside in Meritage stock
Kim’s “buy” rating on Meritage Homes Corp comes with a price target of $240 a share – that’s a whopping 150% upside from here.
Meritage is one I think has a lot of virtuous qualities; very low leverage, high profitability, a business model that goes for affordability and does spec-building focus on efficiencies.
In its latest reported quarter, the Scottsdale-headquartered firm was well above the Street estimates for earnings.
Last month, the U.S. Census Bureau said new home sales were up 7.5% in October. The Evercore analyst is bullish also because he doesn’t expect home prices to be down as much as expected in 2023 – a view that our data analyst Dan Ashmore shares as well.
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