A Buying Opportunity Emerges as This Long-Term Trend Takes a Breather

The real estate market has started to show some signs of slowing down. Homebuilding stocks, which delivered big returns while home prices were rising, have started trending lower in recent sessions.

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  • It also doesn’t help that a number of homebuilding firms have now started to lower sales forecasts as well. While supply and labor issues are part of the problem in the short-term, it’s likely that today’s sales trends will rebound in the months to come.

    KB Home (KBH), a mid-range homebuilder, has now seen shares drop 20 percent from its peak, technically entering a bear market. Shares are still up nearly 10 percent over the past year, but have now underperformed the S&P 500 on a relative basis.

    Action to take: Investors may like to start building a stake here, as the recent drop has pushed the stock’s’ dividend yield to 1.4 percent. The company has ample cash and ample cash flow to get through the current slowdown.

    Traders may want to wait for shares to stop their overall decline before betting on a rebound. The slowdown in shares has been slowing in recent months. A trade like the January $45 calls, last going for about $2.00, would be worth buying in such an event. By the time shares start trending higher, the calls will likely trade at a lower price.

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    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.