Is it safe to step back into the homebuilder stocks now?

New home sales have reached a bottom, which makes now a perfect time to go shopping in the construction space, says John Lovallo. He’s a Senior Equity Research Analyst at UBS.

Highlights from Lovallo’s interview on CNBC

On top of that, there’s talk of a less hawkish Fed now that inflation seems to easing, which could be another positive for the homebuilder stocks. On CNBC’s “Power Lunch”, Lovallo said:

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Homebuilders have been saying they’re seeing early signs of stabilisation. Can homebuilder stocks work before rates change? It’s an early sector and the worst seems to be priced in. So, my answer is, yes, they can.

The iShares U.S. Home Construction ETF has been gaining momentum since mid-June but is still down over 20% for the year that Lovallo dubs an opportunity to conveniently increase exposure to homebuilders.  

What homebuilder stocks does he like?

For those who would rather hand pick individual stocks, a name that particularly pops out to him is D R Horton Inc (NYSE: DHI) that reported better-than-expected profit for its fiscal Q3 last month. Lovallo noted:

Stocks have been battered so much that there’s no reason to be cute. Go with the biggest and the best, and that’s D R Horton. They’re focused on first-time, entry-level – the very need-based portion of the market and are a consistent executor.

Wall Street currently has a consensus “overweight” rating on D R Horton. Other names he likes in this space include Owens Corning (NYSE: OC). The stock down only 2.0%, as per the UBS analyst, has fascinating growth prospects.