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Why You Should Buy The Most Hated Sector On The Market

 February 16, 2012 04:50 PM

For more than half a decade, few stocks have been more vilified than those from one out-of-favor sector. Even as the market recovered from its 2009 lows, this entire group was left behind. Investors simply wanted nothing to do with these stocks…

However, the first signs of life in this sector are beginning to appear. And I've found a unique way for you to play this hidden rally.

I'm talking about the housing sector. Since the housing market peaked more than 5 years ago, few investors have been willing to go anywhere near homebuilders. For years, these stocks have stagnated. Even sector leaders like Toll Brothers (NYSE:TOL) have failed to see their shares recover from 2008 lows.

[Related -Residential Construction Recovery Has A Long Way To Go]

Negative news surrounding the housing market continues to command front-page coverage. It's been all too easy for the media to pile onto the countless human interest stories in the most affected regions of the country. Foreclosure horror stories, entire abandoned neighborhoods, and abusive bank practices remain top stories in the financial and mainstream media alike.

On the surface, housing sector data doesn't look any brighter. The Case-Shiller index — which measures property values in 20 major cities — showed in its most recent data that home prices dropped 3.7% year-over-year.

But beneath the gloom-and-doom, there are several signs that the environment for homebuilders is improving.

[Related -Three Housing Stocks We Like Now: Toll Brothers, DR Horton And Home Depot]

Even Case-Shiller index co-creator Karl Case sees the silver lining in the numbers. Case told Bloomberg last month that the seeds of recovery have already been planted because homes are becoming affordable again. Add in record-low interest rates and you have a reason to be hopeful about housing.

According to the AP, builders broke ground on a seasonally adjusted annual rate of 699,000 homes last month. This milestone puts the seasonally adjusted rate at its highest level since October 2008. These glimmers of hope for the housing market have ignited a stealth rally within the sector:

Homebuilders Index Quietly Outperforms

Am I arguing that the housing market is ready to boom again? Absolutely not.

But when the skies are completely clear for the housing sector (and many experts are predicting at least two years before the market truly regains its footing) the investing opportunities will have passed us by.

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