KB Home (KBH-N)

(A Top Pick November 10/17 - Down 17%.) They had a great year in 2017. Also, other builders. Not so much so far in 2018. Higher interest rates are a negative for the housing market. But there are many positives on the other side of the page. Unemployment is at the lower level since the 60’s. Wage growth at 2%. For homebuilders’ supply is the problem not demand. Revenues up 7%, earnings up 70%. But the market doesn’t like it because interest rates are going up. That creates an opportunity in his opinion.

He is a heavy investor in homebuilders through his US small-cap portfolio. He has 5 homebuilders out of the 40 stocks that make up that portfolio. They’ve done extremely well this year on average, and the 5 of them have grown 55%. Dividend yield of 0.4%. (Analysts’ price target is $25.)

Don’t buy Canadian real estate. Home ownership is at decade lows. The new Silicon Valley is San Antonio. With deregulation, home ownership should increase. (Analysts’ target: $18.77).

Downward pressure depends on how much rates rise, not if. Old resistance is becoming support. As long as the support is holding then don’t short it.

(A Top Pick Feb 26/14. Down 28.79%.) A few months ago they came out with a warning that their gross margins were not going to be as good as the Street thought they were going to be. This was because they were paying a much higher price for land. Stock sold off into the high $1100 and he thought it was just too much. The trend in the industry is still very, very positive. He’ll be looking to see if there is a better place to be.

One of the smaller homebuilders in the US. Likes the space. Prefers Brookfield Residential (BRP-T) over this. You really want to look at the companies with the strongest land position, particularly in an environment where land prices are rising. Brookfield has 20 years plus of land inventory, so they don’t have to pay ever-increasing prices. If anything, they will be selling land to others.

Likes the whole homebuilder sector. He is not a big believer in buying any more of these when you are down. When you go to buy stocks, you buy it because you think it is going higher. If it doesn’t, that means we really don’t know where it is going. There are better things coming down the road.