Opinions
Patrick Horan
iShares DJ Home Construction ETF
ITB-N
HOLD
Oct 01, 2013
$22.480
Stock price when the opinion was issued
E.T.F.'s
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PAST TOP PICK
(A Top Pick Oct 03/19, Up 6%) A play on construction whose seasonality is end-October to February. This is trending higher, supported by major moving averages. He's buying into what goes into building new homes, like lumber which he's done very well with. Even 12 months ago, ITB outperformed, and it has since gone straight up since then. It's exhausted its run, so he's looking for something with juice.
E.T.F.'s
BUY
Home Construction? These go in cycles and he thinks we are at the bottom of the current one and he is back looking. You have to think if demand increases and interest rates remain low, there will be pent up demand, especially when people return to work. Plus there is a good boom in the home renovation space. He thinks the sector has legs going forward.
E.T.F.'s
WEAK BUY
When the market turns, buying US homebuilders is like catching a falling knife. The risk/reward looks in your favour. Housing shortage in the US. The easy thing to do is to buy the ITB ETF, a great way to not have to make a big bet one way or the other. But you're fighting the macro of mortgage rates at 10 to 15-year highs. Not a great setup from a sentiment perspective. As long as builders can sell homes, and they continue to be affordable, they have great earnings power.
E.T.F.'s
If you own this and your entry point was a couple of months ago, your timing was probably poor. He wouldn’t give up on this. The natural replacement of homes in the US is something like 1.5 to 1.7 million homes and for the past 6 years or so, Canada has been producing homes closer to 1 million per year. Construction hasn’t caught up to the natural replacement cycle yet. Renting has been a huge factor and he thinks this is going to change. It is now cheaper to buy a home than to rent. Over 2-3 years this is going to be a good holding. Keep an eye on the 2-10 year yield and when that steepens up a bit, that is when it is very advantageous for homebuyers as well as home construction.