Zelman & Associates founder, CEO, and housing analyst Ivy Zelman is bearish on home builder stocks, citing profitability hurdles in the sector despite a healthy market.
Zelman put a hold on D.R. Horton Inc., PulteGroup Inc., and Toll Brothers Inc., "Because I think ... what you're going to see with the builders is that their pricing power is much more challenged but their costs are all rising," she said on CNBC's "Fast Money Halftime Report." "So profits are where you're going to get the squeeze." Zelman advises picking up builder stocks that, to date, have been "way oversold," and has "buys" on KB Home and Lennar Corp, which her firm anticipates will succeed with or without a housing boom.
Lennar, which is down nearly 40 percent in the past year, can outperform the market as home builders run into months of uncertainty. "I think Lennar, because of ... what we think is the best operations, the strong cash flow they're going to generate, they're buying back stock," she said. Zelman said housing is a "tale of two markets," where there is more demand for lower-priced homes than high-end homes.