This transcript is automatically generated
-- the housing crisis is still raging my next guest says however he sees encouraging trends indicating a new housing recovery now's the time to -- joining me now.
Is Bob wet in Holly's and director of equity research for RBC capital markets -- in the break -- Talking a Bob about the timeline of the investor because it's kind of easy to be a long term -- when it comes in the housing market because you know eventually it will recover.
But what's kind of investor do you think is best suited to be dabbling in housing stocks right now.
It's tough to get in some investors -- late to the party.
Valuations have party had a very healthy run.
Into the start of the year so if you're gonna get into homebuilders now you want to be investing for the next two to five years you need a long term runway to participate.
As the housing market starts to recover.
There's lots of positive signs obviously big picture we're seeing stability in -- labor market we're seeing signs of optimism and in the housing.
Industry as a whole -- short term there's still a lot a speed bumps in the way.
And at what we -- we start to see this need speed bumps dissipate and it's become a stronger and stronger story.
We're expecting to you have the recovery take another three to five years so we're going from 700000 starts today.
That's a big improvement over last year which -- 600000.
So along that way we are definitely gonna have some speed bumps we're looking to get back two million starts by 2014.
So what's this gonna Intel lot of high frequency numbers can be very volatile we need to get -- -- we need unemployment to stay around 8% not flare up.
The ten year to stay close the houses remain affordable there are number of conditions that are prerequisites.
Gradual uptick in the economy is necessary we got to have the labor market stabilize and that we can work through shadow inventory -- we continued demand.
And those and and then the gyrations.
And it with respect to the fundamental developments also could be -- -- in these thoughts.
I mean you talked about the -- that a lot of these -- over already made.
Pretty stealthy but major moves the upside.
But maybe they can now also give some of those up and and in a process for you to the budget target I think that's absolutely correct.
And if you're gonna be an investor and home builders are building products recognize it's gonna be a bumpy ride.
You know what -- blows me -- I think -- -- the last seven generate pieces of data on home building all of them came in lower than the estimates.
It is is there any concern that we just sort of say.
The timing feels right you know like in other words.
We're not necessarily using fundamental -- -- -- it's just sort of a hunch that it's been so long it's bound to rebound I think we're a little bit more constructive on.
Is that our audio book I'm not trying to historic event and you guys crunch the numbers but in general -- a lot of people sort of say.
It feels like maybe we should be at a bottom and that -- -- -- -- have to be the case.
It's really this we're looking for an inflection point in the data that's gonna be captured and better finance well bid at number one -- what's in data point shadow inventory.
Without a doubt which peaked out -- eighteen months it's now down to sixteen and it's trending lower but if that players back we have a problem if unemployment goes to -- half percent this gonna derail the story.
So this is not a guarantee.
Recognize you have -- -- -- bottom gonna get right into them until I had let's talk about the homebuilders which once you're right.
Best in class a play if you want -- -- stock to the five year go to Lennar hands down.
And then KB homes you say is also good bargain hunt -- -- terrible.
I think the second -- is also going to be tough but that's -- in the stock is gonna participate in the housing market recovery it's got one of the most attractive valuations -- don't wanna buy stocks actually beat -- wanna -- when they're -- and -- -- Yeah that's maybe that's -- I -- I don't know I don't know about how about how about this though you also a lot of ideas that you like word people are forced to pick the best housing company.
The ultra mobility you know what if they all gonna do well you like US -- does that the -- like most US I love what's happening.
-- USG's got industry discipline -- pricing.
They reported fantastic numbers yesterday we expect favorable -- pricing trends to continue you're gonna see much better but financial performance the next two years with this stock.
Our price targets 24.
We see a lot of upside get this pricing power -- other Chinese -- -- -- wallboard anymore in the -- that this is how to they get this pricing power grade class and lot more pricing discipline within the industry they're not giving special volume discounts we think the price uniformity will persist -- securing its so far if that continues the stock has lot of upside in price discipline falls apart.
You got downside in the stock it's our call for aggressive investors.
Armstrong an Owens Corning -- the are the your other two takes Bob went home RBC capital markets great to have you -- I think it's an.