One under-the-radar play on the homebuilding boom is flashing a buy signal, trader says

Homebuilding is booming.

Homebuilder sentiment hit a fresh all-time high on Wednesday on the back of rising demand for suburban housing. The iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB) climbed nearly 3% and 2% respectively following the spike, with the XHB hitting a new all-time high.

Wall Street analysts also highlighted several popular stocks in the housing space Wednesday. RBC upgraded the stock of Lennar to outperform on what the firm expected to be “historically strong margins” in 2021, while Evercore ISI upgraded shares of KB Home to outperform in a call that housing was entering a new “golden age.”

There’s one other, lesser-known housing play that investors should be watching, said Ari Wald, head of technical analysis at Oppenheimer.

While names such as D.R. Horton and Home Depot are solid ways to trade the group, “one under-the-radar name that I wanted to discuss today is MDC Holdings,” one of the top U.S. homebuilders with a roughly $3 billion market cap, Wald told CNBC’s “Trading Nation” on Wednesday.

“What’s notable about it and why I’m talking about it is that it is just clearing yearlong resistance dating back to October of 2019,” he said pointing to the chart.

“You have a fresh breakout, which we see as a signal to add to the position,” Wald said. “Buy it.”

Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management, said even a skilled labor shortage and fast-rising lumber prices likely wouldn’t throw a wrench in the homebuilders’ rally.

“This has been a long time coming for this industry and for this sector,” Bapis said in the same “Trading Nation” interview. “There’s a massive surge in demand I think for not only fundamental reasons, but also for feel-good reasons.”

Bapis figured that “the human instinct … to be at home during volatile times” in part contributed to the recent surge, along with historically low borrowing rates.

Better yet, “there’s still value in these companies after a massive run,” he said, noting that even after a 41% year-to-date move higher for Lennar, the stock is still trading at a relatively cheap 11 times earnings.

“You’re seeing massive order expansion, massive earnings growth and the underlying companies like Home Depot and Lowe’s are supporting that growth because they’ve been able to rapidly move to an online growth structure because of their investment in technology,” Bapis said. “So, while there are a couple downside [catalysts] … I believe the upside scenario far outweighs the downside pressure.”

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