For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite 'home run' speculation for 2008 is playing a rebound in the beaten-down US housing sector," says Mike Burnick, editor of Global Market Investor.
"Specifically, I like the iShares Dow Jones US Home Construction ETF (ASE: ITB). This exchange-traded fund is a pure contrarian play not based on valuation, since fundamentals continue to deteriorate in the US housing market.
"The US housing market is still a mess, home prices are plunging, sales continue to slump, and inventories of unsold homes are at record highs. There's very little we can see to like in this sector.
"But, in fact, that's often the key to earning big returns in the stock market: Make well-timed contrarian bets on the most unloved stocks and sectors.
"However, I believe that negative sentiment in the sector has reached an extreme. Put/call volume on homebuilder stocks is at an extreme, and short interest is near record highs. I believe the turning point for this sector is close at hand.
"Although housing prices should continue to deteriorate for several months going forward, I see the major homebuilders beginning to clear out inventories of unsold homes.
"Many builders have already taken substantial write-downs on the value of completed homes and land. Two catalysts to watch for to confirm a rebound rally in builders are: #1 consolidation activity in the sector, #2 unsold home inventories begin to decline from record levels. Either catalyst could easily trigger 50%-plus price appreciation in ITB."
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