Stalwart stocks like Netflix (NFLX) and Tesla (TSLA) dropped 8% and 9% today after capping their earnings reports with disappointing outlooks.
That was the bad news.
But other stocks also dropped – despite some upbeat forecasts.
And that’s the good news … because it creates some intriguing opportunities.
Homebuilders, for one, are much better positioned than investors understand right now.
Builders are the opposite of a Tesla or a Netflix, which are companies that people want to believe in. Those firms, and others like them, are always making headlines – with a Cybertruck or a “Tiger King.”
But when reality falls short of the hype and hope, it’s a huge letdown.
Housing is a sector no one wants to believe in right now…because the media is pushing such a negative narrative about it.
But that kind of disconnect between a downbeat narrative and an upbeat reality sets you up for the best of possible moneymaking windows – the “upside surprise.”
So, today in Power Trends, let’s peruse the newest numbers on the housing market and put this negative to the test:
Interest rates are high. No one’s moving. Homebuilder sales and earnings aren’t looking great. What a disaster.
Well, as I told you in June, the iShares U.S. Home Construction ETF (ITB) was the top-ranked ETF in my Quantum Edge system. And still today – there’s something big going on with homebuilders that most onlookers are missing.
The Housing Market Hasn’t Given Us Much to Get Excited About…Yet
This week, we got the June reports on U.S. housing starts, building permits, and existing-home sales.
They were nothing to (pardon the pun) write home about: All three numbers dropped from May and, even worse, were lower than expected.
So, when you combine weak housing data with the stock-dumping angst triggered by today’s high-profile disappointments…
You end up with share-price drops of as much as 3.5% in major homebuilder stocks like Lennar (LEN), D.R. Horton (DHI), NVR Inc. (NVR).
And there’s the disconnect.
The news was disappointing.
The share-price drops are disappointing.
But homebuilders haven’t been that disappointing.
Lennar reported profits of $2.94 a share on sales of $8.05 billion in the second quarter – beating estimates for 62 cents a share and $810 million, respectively.
And just today, D.R. Horton reported earnings of $3.90 per share on sales of $9.73 billion, which beat by $1.11 per share and $1.32 billion.
I grant you, those earnings numbers were down from the second quarter a year ago. But expectations are a key piece of the Wall Street game. And those declines were less than Wall Street predicted.
In the world of the stock market, that’s good news.
And yet – what the “gloom-and-doom” headlines about housing aren’t saying is this:
The “smart money” – the Big Money players who dominate Wall Street – are buying these stocks anyway.
Homebuilders Have Attracted Big Money All Along
Here’s Lennar, whose stock enjoyed three Big Money buys ahead of its June 14 earnings – and even more of them afterwards:
Source: MAPsignals.com
D.R. Horton is even better, with eight Big Money buys leading up to its earnings report today:
Source: MAPsignals.com
Why are homebuilders, apparently, such a hot buy?
We got one clue in Lennar and D.R. Horton’s quarterly reports – where both companies raised their forward guidance for the full-year 2023.
And we got another clue on Tuesday, when real-estate researcher Redfin found that only 1% of America’s homes have changed hands this year. Turnover hasn’t been this low in a decade.
Stiffer mortgage rates and inflation-driven home prices have made the whole homeownership experience too costly. So, fewer people are out there buying (or listing their current home).
Certainly down here in South Florida where I live the mantra has become: Good luck buying a home.
And the “inventory” of houses out there on the market is pretty lean, anyway.
We got our third clue yesterday:
Apparently, now that rates have finally started to drop, mortgage applications are surging – and have been for four straight weeks. See, there are always people who want to move – and now, maybe, they finally can.
That’s the good news we’re getting (if we know where to look).
But the Big Money crowd knew this all along – and that’s why they’ve been buying homebuilders these past couple of months.
You know: the folks who can provide more houses now that demand is picking up.
Wall Street Looks to the Future… So You Should, Too
When big institutional investors pick stocks (or toss them out), they’re acting on what is going to happen … not what’s happening now.
So these players are looking past the current reports – to what’s in the cards for next quarter, or the full year.
Want proof? Look at how the “guidance for the ages” from Nvidia (NVDA) back in May missiled that stock to new highs.
And Wall Street firms have sources that most retail investors don’t have.
They care just as much about estimated sales and earnings as the rest of us…
But Wall Street pros have access to very unique research, like flying drones around to “spy” on places like shopping malls and spot unexpected trends in what consumers are up to. And they have longstanding networks of sources for data that most folks can’t access.
Our Quantum Edge system acts as a “proxy” for those advantages that Big Money investors have – and lets you invest on their coattails.
This is why I always pay attention to Big Money activity in stocks like D.R. Horton, which I recommended in Quantum Edge Trader on June 1. And DHI quickly became one of our best positions, up 18% already.
To see my latest buy alert – and get on the list for all the trades going forward – watch this to learn more and get involved in Quantum Edge.
Talk soon,
Editor,
Jason Bodner’s Power Trends
