Earnings season plus an overwhelming need for reconstructing storm-damaged homes? That adds up to big short-to medium-term opportunities in the homebuilding space.
For the best idea of how it will play out, look to Hurricane Katrina back in 2005. The S&P 500 had fallen 1.2% in the week prior to Katrina, and surprisingly post-landfall, the market reversed and went a lot higher over the next month as the cleanup and recovery efforts were expected to bring in a lot of fresh federal dollars to the task.
I would not be surprised to see the market’s 1.5% pre-Sandy decline reverse into a rally during the next couple of weeks, with stocks related to rebuilding — such as home-improvement retailers Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW), materials maker Eagle Materials (NYSE:EXP) and even carpet maker Mohawk Industries (NYSE:MHK) — rising a lot higher.
These companies are stronger already thanks to the home construction boom, and the post-Sandy cleanup should only augment their success.
Click to EnlargeTop names in the homebuilder space itself include Lennar (NYSE:LEN) and PulteGroup (NYSE:PHM). Both are suburban homebuilders that could see business flock to their communities in New York and New Jersey as families look to rebuild their lives after the storm.
Lennar has pulled back again to its rising 20-day average, which has served as a launching pad for further gains in the past year (note that the whole advance started in November 2011). I’m watching this stock for my portfolio. Consider buying on dips.
Jon Markman writes a daily swing trading newsletter, Trader’s Advantage. He uses a combination of fundamental and technical analysis to identify which stocks will move quickly.