Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
Homebuilder KB Home (NYSE: KBH) is the top conservative idea for 2007 from Ryan Detrick, editor of Players Performer. He explains, "The stock has been a very strong technical performer since the housing sector bottomed in July.
"At the time, the media was flooded with bearish claims that the housing bubble was about to burst and that the sector as a whole had nowhere to go but down. During the final few months of 2006, housing stocks have been able to advance amid this wealth of skepticism -- a very positive development that could lead to additional gains throughout 2007.
"This strength amid negative data indicates that there is a good deal of sideline cash that could begin to flow into the housing sector should the companies begin to display any signs of leveling out on the fundamental side.
"It's clear that the investing public is betting against KBH. From a contrarian perspective, this skepticism toward an outperforming equity is a bullish indicator. Looking at a quick rundown, we have bearish media sentiment, bearish analysts on Wall Street, and bearish quantified sentiment -- all of this despite positive price action.
"Meanwhile, short sellers are also bearish on KBH. Basically, shorting a stock means that you borrow the shares first in order to sell them on the market with the intent of buying them back at a later date for a lower price, thus pocketing the difference.
"A large buildup of short interest could lead to a huge short-covering rally on any good news, as these investors rush to buy back their positions. For KBH, more than 13% of the stock's float is sold short, which should be ample fuel for a covering rally."
To see Ryan's favorite speculative idea for 2007, click here.
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