Housing Bubble 2.0

The run up in homebuilder stocks is nothing short of spectacular… and suspicious.

While the S&P 500 is up 28% since September 2011, homebuilder stocks have trounced that gain.

On the low end of the range, AV Homes (NYSE: AVHI) is up 42%, even as they’ve lost $430 million since 2008.

On the high end you’ll see PulteGroup (NYSE: PHM) has mounted an insane 355% rally. And they aren’t really profitable, either. They made $206 million in net income last year, after losing $6.2 BILLION in the prior five years.

This is ludicrous! Take a look…

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Homebuilders have made major adjustments – they’ve written down inventory and reduced overhead costs, like wages. You could call it “right-sizing.” We call it deflation. Nonetheless, these adjustments could have put homebuilders in a much stronger position to be profitable.

But that’s not what I see happening here.

More likely, the outperformance of homebuilder stocks is a sign of pure, unadulterated speculation. Investors – from Wall Street to Main Street – are yearnrning for “the bottom.” Eager anticipation of a real housing recovery will cause these stocks to be bid up, even if not justified by the fundamentals.

Can you say “Housing Bubble 2.0?”

Stay clear of homebuilders, unless you’re a short-seller. Boom & Bust subscribers will soon receive clear instructions on how to profit from the overzealous bid-up of these stocks. Watch your inbox closely for our April issue, due out soon. If you’re not yet a subscriber, this is not an issue you want to miss. Here’s why.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.