From: Reuters
Published October 2, 2007 11:47 AM

Home-builder stocks surge on hopes worst is over

CHICAGO (Reuters) - Home builder stocks surged for a second consecutive day on Tuesday as investors gambled the struggling U.S. housing market, faced with further possible interest-rate cuts, may have bottomed out and now is the time to buy, investors said.

The Dow Jones U.S. Home Construction index (.DJUSHB: Quote, Profile, Research) rose as much as 8.4 percent on Tuesday morning and was still up 4.1 percent.

"The anticipation is that we are at or near the bottom of the (housing) market and the only place to go is up," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois. His firm does not own any home builder stocks, but he follows them closely.

Among the home builder stocks showing large gains were Brookfield Homes Corp (BHS.N: Quote, Profile, Research), up 12.2 percent; M/I Homes Inc (MHO.N: Quote, Profile, Research), up 7.6 percent; Beazer Homes USA Inc (BZH.N: Quote, Profile, Research), up 7.3 percent; and Standard Pacific Corp (SPF.N: Quote, Profile, Research), up 6.5 percent.

On Monday, the home-builders index rose as much as 5.1 percent before closing up 4.2 percent after Citigroup analyst Stephen Kim raised his ratings on several home-builder stocks to "buy," saying the companies with the strongest balance sheets would benefit most from any near-term bounce.

While he warned that he does not see any near-term relief for the U.S. housing sector, its history has shown that when things look really bad is when the stocks start looking good.

"It bears repeating that the home-building stocks have an established history of rallying well before industry fears have finished transitioning into fact," Kim said in the Monday research note.

Thomas Leritz, portfolio manager with Argent Capital Management in Clayton, Missouri, said Tuesday that Citigroup's note, along with the Federal Reserve's recent rate cut and more expected to come, have combined to give investors hope.

"People are trying to figure out the bottom," he said, adding he did not personally believe the sector has hit bottom yet. "When you look at the stocks, they've really been hit hard. There's a lot of people out there who are trying to discount the future."

Argent does not own any home builder stocks, but Leritz follows the sector closely.

(Additional reporting by Kristina Cooke in New York)


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