Homebuilders Stay Hot Despite High Mortgage Rates

JOIN OUR LIVE SESSIONS! Our LIVE session starts when the big institutions and elite traders do before the opening bell. We'll look at real-time dark pool data as the market movers position themselves for the trading day in secret off-market exchanges. [JOIN OUR LIVE TRADING SESSION @ 6am PT / 9am ET]( [Shadow] Hello investor, The odds of a debt ceiling deal jumped higher after House Speaker Kevin McCarthy said that reaching an agreement this week is “doable.” President Joe Biden also expressed optimism. But the time is running out fast until the deadline of June 1st. - “We don’t want to get too excited as the two sides reportedly remain far apart,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. - “However, we get the sense that there is a real effort to avert a debt ceiling catastrophe as the X-date of June 1 is fast approaching. Stay tuned.” Win Thin, global head of currency strategy at Brown Brothers Harriman (Photo: Bloomberg) Wall Street saw this story all the time. Both sides play hardball to score some political points before striking a last-minute deal to avoid a default. So, stocks ignored the danger of a default with the S&P 500 climbing by 1% yesterday. - “We all know the US Treasury is about to run out of ways to pay its bills, but we have seen this movie too many times before,” said Chun Wang at Leuthold Group. - “While, theoretically, there is a threat of default, we certainly don’t recommend planning our lives around it. The script is very predictable: political posturing and grandstanding will go on until the 11th hour, and then a deal will be hastily put together to avoid a default.” Besides debt ceiling talks, the eyes will be on Walmart’s earnings this morning. It will offer a clue on the current state of consumers. Weekly jobless claims, the Philadelphia Fed’s manufacturing survey numbers for May, and existing home sales will be released. A bonanza for homebuilders: Guess what? The S&P Composite 1500 Homebuilding sector hit a new 52-week intraday high Wednesday. The sector was the best-performer in the index over the last six months. It was a phenomenal comeback after dropping by more than 40% last year. There are simply limited inventories, and homebuilders are taking advantage of the opportunity to build new homes. Many current homeowners are unwilling to sell homes because many of them have refinanced when the rates were rock-bottom. Now, they don’t want to take on new mortgages if they sell their homes. So, there was a big opportunity in the new construction market to fill in the demand. - “What we’re seeing, frankly, is the early stages of the Street recognizing that there’s something significant that they underestimated in builders,” Evercore ISI analyst Stephen Kim said in an interview. “Now they’re in the process of revising that.” Plus, homebuilders addressed high mortgage rates by offering to buy down a 6.5% mortgage rate down to between 5% and 5.5%. D.R Horton said it gave this incentive on about 65% of its sales. And its stock roared to $112 yesterday after trading as low as $28 back in early 2020. - “With builders able to uniquely leverage mortgage rate buydowns, and buyer urgency mounting as home prices have bottomed (also due to the lack of inventory), we continue to view homebuilders as positioned for further growth recovery,” said Barclays analyst Matthew Bouley. Goodbye Nike? Invest In This Extraordinary Grower Today’s Stock Pick: Lululemon Athletica Inc. ([LULU]( Is it time for Nike to start worrying? Certainly so. Lululemon Athletica is one of the most intensely loved brands in the world. It started as a female-oriented brand, but it is no longer a “one-trick” pony. The company quietly expanded into the men's category – and saw phenomenal success. The company’s vision for shareholders is called “Power of Three x2”. (Photo: SOPA Images) The goal is to quadruple its business from 2021 levels by the end of 2026. Despite economic uncertainties, the business is still going strong. CEO Calvin McDonald emphasized that Lululemon is “a full-price business” and resists the temptation to drive traffic through massive markdowns and price promotions. As a result, its margins are insane! LULU has a Return on Assets of 20.45% and a Return on Equity of 29%! And its balance sheet is fundamental. Debt/Equity is 33% which is the standard. Current Ratio is also healthy at 2.12. In short, LULU has avoided short-term temptations -- like leverage and price discounts – while keeping a “dream” balance sheet. Revenue growth: LULU grew its revenue by 30 y-o-y and 27% on a three-year CAGR. This is key. Luluemon’s recent quarter remained on the same growth pace as its three-year CAGR, showing the strength in its business. (Source: Lululemon) Any shift in consumer behavior? You’ve heard about other retailers warning about consumers tightening up their purses. So far, LULU said they haven’t seen any change in spending patterns, behaviors, or habits. New categories: LULU created a new category of clothing for yoga enthusiasts. The question for new companies is whether they can grow beyond their first category. Sure enough, LULU already expanded into the men’s category. And it has multiple levers to continue the business momentum. For example, LULU developed a new category of “Play”. Meaning? Golf, tennis, and hike. More importantly, LULU didn’t simply sign a private-label manufacturer and start selling them to exploit its brand power. (It likes to do difficult things.) LULU uses “targeted innovations” to create actual value for each activity. Take golf as an example. It would study the sport and come up with new innovations that make playing golf more pleasant. That’s a classic trait of an enduring franchise. You can see it in the financials. Lululemon has been in the women’s category for years, but its 3-year CAGR is still high at 23%. Men’s is even higher at 26%. This is truly a wonderful company to own. (Source: Lululemon) International expansion: That’s a second powerful growth driver. If you’ve got a brand that is desired by global customers, then you have a very, very powerful growth driver. The world is a very big place, so Lululemon has a long growth path ahead. International revenue had a 39% three-year CAGR which is well above of its North American’s CAGR. (Source: Lululemon) Bottom line: Lululemon is a “dream” business with insane margins while growing at a very high pace. How can you ask for anything more? This stock is going to be a long-term winner. Own this stock now and ride on this company’s “Power of Three x 2” vision. FREE LIVE TRADING SESSIONS & TRAINING USING THE MOST COMPREHENSIVE DARK POOL MONITOR AVAILABLE TO THE RETAIL INVESTOR Join our LIVE Trading Sessions throughout the day where we will focus on how you can learn to master the markets through the use of advanced algorithms and AI to trade like the institutions. BEFORE THE BELL Starts 6am PT / 9am ET Our newest LIVE session starts when the big institutions and elite traders do, well before the market opens. We'll look at realtime dark pool data as the market movers position themselves for the tra ding day in the secret off market exchanges. 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