Blooming season has come for homebuilding stocks

CNBC’s Jim Cramer on Tuesday said investors should not panic about February’s “truly pathetic” housing starts number because the market is primed to bounce back.

Single-family home construction declined 8.7 percent last month to a 1-1/2-year low, but housing forecasts are looking better as mortgage rates decrease. The housing market is not flashing recession signals, he said.

“Don’t be afraid of the hideous housing numbers. Be aware that this is a natural decline, which I think will be followed by an advance that you can profit from as housing enjoys its annual spring rebound,” the “Mad Money” host said.

Cramer predicted home building will be stronger in March. The Federal Reserve’s rate hike in December, despite Cramer’s objections, made home prices and mortgages more affordable, and raw materials costs have fallen faster than housing prices, he said. The decrease on 10-year Treasury yields is also a “godsend for the industry,” he added.

So he’s throwing his faith behind Lennar, the leading homebuilder, and DR Horton, the top affordable homebuilder. The respective stocks are up 25 percent and 18 percent this year.

“But they remain incredibly cheap on a price-to-earnings basis and I bet they could be huge beneficiaries of pent up demand now that we’ve put the bad weather behind us,” he said. “We got a very good number just this evening from KB [Home] and they are predicting a very good spring selling season.”

Poor weather made it tough to build homes, as illustrated in the fourth-quarter earnings of home improvement retail rivals Home Depot and Lowe’s, Cramer said. Restrictive zoning laws across the country, notably in the San Francisco Bay area, have led to construction constraints and higher home values. Other factors to consider, he added, are the removal of state and local tax deductions from federal tax returns, lower housing affordability and high student debt pushing more young adults to live at home with their parents.

Tuesday’s housing data pressured Home Depot and Lowe’s stocks, which fell 0.18 percent and 0.07 percent, respectively, during the session. Cramer pointed out it’s blooming season and Lowe’s is becoming more competitive with Home Depot.

“I think they’re both worth buying into weakness—anyone selling these two stocks here I think maybe get their head checked,” he said. “Because we’re going into the outdoor season right now, which is Christmas time for these companies as people start spending a lot of money on gardening and, of course, outdoor furniture and grilling.”

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