Fundamentals Are Critical... But This Factor Is, Too

The latest housing market data wasn't pretty...

Last week, the U.S. Department of Commerce released new numbers for housing starts.

This statistic is one of the most important for the sector. It refers to the number of new privately owned apartments and single-family homes that broke ground in the past month.

Housing starts for August were 1.58 million. That's up from July's 1.4 million... but lower than June's 1.6 million. And it's far less than rates from earlier this year.

Part of the reason housing starts are down this year is due to rising interest rates. It has become significantly more expensive for homebuilders to borrow capital. So they're less willing to invest in new projects.

And rising rates don't only hurt homebuilders. It's also harder for potential homebuyers to take out loans to pay for new houses.

This combination of falling demand and a lack of investment by builders means the good times are likely over for the homebuilding industry.

No matter how cheap homebuilder stocks might look today, we believe it's best to stay away for now.

To be clear, we aren't saying that you should abandon homebuilders forever...

But you'll need to be patient and wait for the next opportunity to present itself. That won't happen until sentiment bottoms and the borrowing environment improves.

It was this exact strategy that led to one of our most successful stock picks in Altimetry history.

As we explained in our August 3 edition, we recommended homebuilder D.R. Horton (DHI) to Altimetry's Hidden Alpha subscribers back in April 2020.

After years of lukewarm returns, the tide had begun to turn for the sector. And as the pandemic drove young people out of rental units and into their first homes, D.R. Horton was perfectly positioned to benefit.

It took some time for the market to figure out how much potential D.R. Horton had. But once it did, the results spoke for themselves...

Investors who followed our advice booked a combined gain of 157% in a little more than a year. That's compared to the S&P 500's 78% gain in the same time frame.

As we explained in August, we were able to beat the market to the punch because of pandemic-related tailwinds that pushed the company's return on assets ("ROA") up. D.R. Horton's Uniform ROA climbed from 18% in 2020 to 24% in 2021.

But another facet of that trade was critical to boosting our returns...

Timing.

The most important piece of our D.R. Horton success story – the key aspect that sent our returns skyrocketing – was that we recommended the stock at the best possible time.

I (Rob Spivey) have talked a lot recently about a new project the Altimetry team embarked on. In short, we combined the power of Uniform Accounting with the proprietary "Power Gauge" tool at our corporate affiliate, Chaikin Analytics.

The Power Gauge uses 20 different factors in four categories to rate stocks from "very bearish" to "very bullish." No matter what the market is doing, it effectively "levels the playing field" between individual investors and Wall Street.

And when we looked back at D.R. Horton in the Power Gauge, we noticed something...

Within days of our recommendation, the Power Gauge had turned "bullish" on D.R. Horton. That meant the market was beginning to pay attention to the same signals we had flagged for our subscribers.

As I explained yesterday, sometimes we recommend a stock with sound fundamentals... but investors have to wait a while for the market to catch on.

But when we teamed up with the folks at Chaikin, we were amazed by what we found. We were able to identify 133 stocks in the past decade that both satisfied our rigorous Uniform Accounting standards and flashed green on the Power Gauge.

We call these selections "Perfect Stocks." And even more exciting, these stocks don't only soar when the market does well. It turns out, they often do even better in the aftermath of big crashes and corrections.

If you're interested in learning more about Perfect Stocks, be sure to check out our "Financial Lifeline" presentation. We shared the full details of how this system works... and an extraordinary new market prediction that could trigger potential windfall profits (if you know what's coming and how to play it). Learn more here.

Regards,

Rob Spivey
September 28, 2022