Sector deep dive

  • BLDR has outpaced homebuilding sector over past year
  • Company supplies materials to homebuilders
  • Stock turned 3% loss into a gain on Thursday

Despite rising mortgage rates and some indications of softness in the US housing market, homebuilder stocks have continued to roll: The S&P homebuilder index is up around 17% year to date, and more than 170% over the past year.

While a relative handful of high-profile names (LEN, LGIH, TOL, DHI, PHM, KBH, etc.) typically dominates the homebuilder discussion, yesterday’s LiveAction scan for unusual call options volume helped highlight the industry’s impact on a wider range of stocks.

Builders FirstSource (BLDR), a company that supplies homebuilders and contractors (lumber, siding, insulation, etc.), had nearly five times its average call volume. While it lacks the name recognition of the top homebuilder stocks, that hasn’t prevented it from outperforming almost all of them in recent months:

Chart 1: Builders FirstSource (BLDR), Lennar (LEN), S&P 500 (SPX), 7/14/20–3/25/21. Builders FirstSource (BLDR), Lennar (LEN), S&P 500 (SPX) price chart. Building supplier outperformance.

Source: Power E*TRADE

Since mid-July, BLDR more than doubled the return of one of the hotter homebuilder stocks, Lennar (LEN), and gained more than four times as much as the S&P 500 (SPX).

After hitting a new all-time high of $47.74 last week, the stock retreated with the rest of the market, falling around 11% to $42.11 over the next four days—roughly 28% below the average Street analyst target of $54.08.1 The following chart shows the current pullback is, so far, about the same size as the others that have formed over the past several months:

Chart 2: Builders FirstSource (BLDR), 9/29/20–3/25/21. Builders FirstSource (BLDR) price chart. Intraday rebound.

Source: Power E*TRADE

The chart also shows that after sliding to its lowest low in more than two weeks yesterday morning, BLDR reversed to turn a 3% loss to a 4% gain.

There’s more housing data due next week, and while signs of further weakening could certainly weigh on homebuilders, to date the uptrend is intact. That could change tomorrow, but in the meantime, traders interested in the sector may find more opportunities by looking outside the spotlight shining on its best-known names.    

Market Mover Update: Taiwan Semiconductor (TSM) rallied yesterday after Wednesday’s range breakdown (see “Chips and dips”), while MicroStrategy (MSTR) extended its breakdown to a second day (see “Trading volatility vs. price direction”).

Today’s numbers (all times ET): Advance International Trade in Goods (8:30 a.m.), Personal Income and Outlays (8:30 a.m.), Advance Retail Inventories (8:30 a.m.), Advance Wholesale Inventories (8:30 a.m.), Consumer Sentiment (10 a.m.).

Today’s IPOs include: Edgewise Therapeutics (EWTX), Design Therapeutics (DSGN), Ikena Oncology (IKNA), Alignment Healthcare (ALHC), Zhihu (ZH), Hywin Holdings (HYW), ThredUp (TDUP), LAVA Therapeutics (LVTX), Cricut (CRCT).


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.  

1 TipRanks. Builders FirstSource Stock Forecast & Price Targets. 3/25/21

What to read next...

In the middle of a semiconductor shortage, a news surprise sends shockwaves throughout the industry.

Why you can’t avoid forecasting in trading—you can only choose what you forecast.

The energy sector—and many other value stocks—took a step back last week. Warning sign or opportunity?

Looking to expand your financial knowledge?