Weekly Update: Profiting from the Construction Boom
Good evening, and welcome to this week’s edition of Stealth Trades!
We are in the early stages of a major construction boom.
I went as far as hosting free Saturday webinars last year to make my case and highlight what I believed was a huge opportunity in building stocks.
Nothing has changed.
I am as bullish today as I was then, even though many of these stocks are already up 100% or more.
Take a look at the sector performance over the last 6 months:
I have put a yellow star next to every construction-related group. Over the last 30 days, building products, home builders and lumber hold 3 of the top 5 spots.
The evidence is crystal clear. This is where money is flowing.
Why? It’s simple really. No one is selling their homes. More than 60% of mortgages are locked in with a sub-4% interest rate.
They’re not going to sell. Who wants to give up a 3% mortgage to take out a new one at 7.5%. The payment will be doubled.
This has caused a record low in housing supply.
New construction is the only game in town, and homebuilders are seeing record profits because of it.
So how can YOU profit from it?
There are two ways to invest in the housing boom. The first, and most obvious, is to buy homebuilder stocks – names like D.R. Horton (DHI) and Dream Finders Homes (DFH).
We bought the latter in my Alpha stocks service back in November and we are up 72% since.
The setup was simple – a shallowing base off the moving averages at the end of a pullback.
But there have been several other opportunities to buy.
I missed the first entry last year…
CHART LINK: https://www.tradingview.com/x/uHD9L9bd/
This one was about as pretty as they come – a 60% rally off the lows to clear the 200-day moving followed by a series of shallowing retracements. Notice how volume rose and fell in sync with the stock too. This was a clear sign of accumulation.
That trade would have been a nice triple:
CHART LINK: https://www.tradingview.com/x/Am2wgtaA/
Here are two more recent entry points:
By the way, we cover these entry tactics every Monday at 4pm ET in my live zoom classes. If you are getting this email, you have free access.
Anyway, homebuilder stocks are the obvious play.
The other area to watch is the building materials sector. Companies that make drywall, flooring, light switches and everything in between also benefit from increased home construction.
Eagle Materials (EXP), for example, makes concrete and Gypsum boards. We bought this stock around the same time as DFH, and it has performed beautifully.
There was another breakout buy opportunity in late January, and I’m sure there will be more.
If you are looking for a stock to buy now, you might consider Trex Company (TREX). They make wood-alternative decking, outdoor furniture and fencing. The is currently breaking out from a similar shallowing base pattern:
TREX is also sitting at the elusive “century mark” as we call it. $100 tends to be a significant area for stocks. You’d be surprised how many people say, “I’ll sell it if it gets to $100.” Sounds stupid, but it’s true.
This is why stocks often find resistance at these large round number prices. So don’t be surprised if TREX stalls here for a few days. It’s normal.
I’ll be running through my list of home construction stocks in Monday’s live session to see if we can find additional opportunities. I hope you can join me.
Best wishes for your trading,
