Key Points
Homebuilder stocks are showing significant gains as the sector outperforms the market.
Industry leaders like PulteGroup and Toll Brothers are demonstrating strong performance during this surge.
The SPDR S&P Homebuilders ETF has increased by over 36% year-to-date, surpassing the overall market during the same period.
5 stocks we like better than PulteGroup
Few sectors have been as impressive as the homebuilder sector in recent weeks. The SPDR S&P Homebuilders ETF NYSE: XHB has risen by over 16% in the last month, outpacing the overall market, which has risen by 7%, and the technology sector, which has risen by 12% in the same period.
Notably, two leading companies within the sector have experienced a significant rally during this time and have reached new 52-week highs. These movements occurred after both stocks traded near their 200-day simple moving average (SMA) just one month ago.
Given the recent outperformance of the sector and the attractive technical charts of heavyweight companies within it, it’s certainly worth taking a closer look at the sector.
Two stocks that have garnered attention in the past month for their relative strength and favorable chart setup are PulteGroup Inc. NYSE: PHM and Toll Brothers Inc. NYSE: TOL. But before delving deeper into these two names, let’s first examine the popular sector ETF, the XHB.
Homebuilder sector ETF XHB outpaces the market
The XHB ETF has outpaced the market in recent weeks and year-to-date (YTD), now up just over 36%. For those unfamiliar with this ETF and investment vehicle, the SPDR S&P Homebuilders ETF (XHB) strives to mirror the S&P Homebuilders Select Industry Index, focusing on the homebuilding sector within the broader S&P Total Markets Index.
Its portfolio exhibits an 85.3% geographic exposure to the United States and a substantial 40.5% industry exposure to household durables. With an attractive 0.78% dividend yield, managing $1.36 billion in assets and maintaining a modest net expense ratio of 0.35%, XHB has long been a prominent investment option.
The ETF includes Toll Brothers as the 17th largest holding with a 3.62% weighting and PulteGroup ranking as the seventh-largest holding, carrying a 3.93% weighting. Both stocks have displayed impressive relative strength recently.
Two homebuilders outshine the rest
PulteGroup specializes in land acquisition and development for residential purposes. Additionally, PulteGroup facilitates financing through mortgage loan origination for homebuyers, selling servicing rights for these loans and providing various title insurance policies, examinations, and closing services to its clientele.
PHM shares surged by nearly 27% in the last month. Technically, the stock presents a potential upward trajectory. Consolidating near its 52-week highs within a narrow range, PHM may experience a continuation of upside momentum if it can break out above the short-term resistance near $89.
Toll Brothers specializes in developing, constructing, and financing residential and commercial properties. The company maintains a strong financial position, evident in its prudent debt-to-equity ratio, showcasing responsible management of financial commitments.
Trading at a low P/E ratio of 6.2, the company falls into the value investment category and offers a modest dividend yield of 0.97%. Analysts have given the stock a “moderate buy” rating, reflecting positive sentiment.
In the last month alone, the stock has surged by over 25% and is consolidating above the rising five-day simple moving average (SMA) within a narrow range of $85 to $87. A breakthrough above $87 could trigger further upward momentum for the stock and the entire sector.
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