Trade of the Day: Lennar (LEN)

With the homebuilders rebounding, make sure you focus on one of the best

   

Homebuilders are the favored group for the government now, and wherever the government throws its financial support, traders should pay attention.

This is the strongest industrial group on the board, bar none, and will give traders many opportunities to make money during the next 12 months. In short, the “homies” are undervalued and should have a long flight path ahead. But how does a trader choose among the top names of DR Horton (NYSE:DHI), Pulte Homes (NYSE:PHM) and KB Homes (NYSE:KBH)?

One that I favor is Lennar (NYSE:LEN). It’s been leading the pack in its space, and also out-performing relative to other stocks, usually a very positive signal about the forward strength of a stock.

LEN is bounding off 80-day exponential moving average (EMA) support, and its stochastic is turning higher in a similar manner to August. That rebound led to a $10 gain during August, September and October, and I would not be surprised to see a repeat performance.

In fact, even in the shortened holiday week, LEN stock managed to gain another 5.16%. Since housing is the brightest area of the economy at present, expect bulls to return to LEN in bulk this week and push the value of the stock up.

To play this, I like the LEN Dec 40 Calls at current levels. With normal trading hours resuming Monday, these calls could be up to new highs by mid-December. Right now, though, I’m setting $1.60 as an initial target and an area to take some profits off the table.


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