Battered Builders

Some Wall Street pros are piling back into homebuilding stocks, despite a bleak outlook. What on earth are they thinking?

Is it time to call the bottom in homebuilder stocks? The sector showed some signs of life after one of the Street's top-rated housing analysts, Citigroup's (C) Stephen Kim, released a new research report on Oct. 1 saying the worst was over. If the past three decades of downturns are any indication, Kim figures, a three-month decline in homebuilder stocks greater than 30% typical leads to an average return over the next three months of 31%. As a result, Kim upgraded all the biggies: Centex (CTX), D.R. Horton (DHI), Lennar (LEN), Pulte Homes (PHM), and Ryland Group (RYL) to a buy recommendation, up from hold.

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