While the broader market has
experienced some choppy action of late -- and the key U.S. benchmarks are solidly in negative year-to-date territory -- the homebuilding sector has been a consistent outperformer. For instance, the
iShares Dow Jones U.S. Home Construction ETF (NYSEARCA:ITB) and
SPDR S&P Homebuilders ETF (NYSEARCA:XHB) both sport a year-to-date gain approaching 8%.
Among the 28 homebuilders we cover at Schaeffer's, half are sitting above their 80-day moving average -- the highest proportion of any sector we track. And yet, pessimism lingers. Just 50% of analysts have handed out "buy" ratings -- slightly less than where they were one year ago -- and, on average, 9.4% of a given homebuilder's stock is sold short, representing a week's worth of pent-up buying activity, at typical volumes. From a contrarian perspective, this sector is in a strong position to
benefit from unwinding negativity.
This is not only true of the sector, more generally, but a number of homebuilder stocks. Three worth highlighting are
D.R. Horton, Inc. (NYSE:DHI),
Toll Brothers Inc (NYSE:TOL), and
Century Communities, Inc (NYSE:CCS).
DHI has powered up the charts this year, adding a market-beating 20% to trade at $30.37. What's more, the shares have benefited from support at their 50-day moving average, which ushered them to a nine-year high of $32.37 last month.
More likely than not,
option bears are on edge. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), DHI has racked up a 50-day
put/call volume ratio of 1.46 -- higher than all but 8% of readings taken in the last year. Similarly skeptical is the brokerage crowd, which has handed out eight "hold" ratings, versus just six "buy" or better endorsements. As these doubters start hitting the exits, D.R. Horton, Inc. could make a run at higher highs.
Sector peer
TOL also stands to benefit from
bullish analyst attention. Despite tacking on nearly 7% at $36.65, the shares have received "hold" or worse suggestions from three-quarters of covering analysts. If that's not enough, the consensus 12-month price target of $39.91 stands at a less than 9% lead relative to current levels, and in territory charted as recently as Aug. 21. Should these skeptics begin to re-evaluate their posture, Toll Brothers Inc could extend its gains.
Lastly,
CCS has soared 28.5% year-to-date to trade at $22.20, and hit an annual high of $23.06 late last month. What's more, the stock boasts steady support from its ascending 20-day moving average. Nonetheless, Century Communities, Inc's
short-interest ratio registers at 8.70, meaning there's plenty of sideline cash available to fuel the stock's next move up the charts.