Wedbush favors four homebuilding stocks heading into 2023

Stable or declining mortgage rates should support owning homebuilder stocks in 2023, while a rising or volatile rate environment "may result in underperformance versus the market," Wedbush analyst Jay McCanless tells investors in a research note. Wedbush does not have a formal rate call, but is assuming a favorable rate environment in 2023 should support owning "affordable builders that can deliver homes in a timely fashion," says the analyst. He believes Outperform-rated Cavco Industries (CVCO), Skyline Champion (SKY), D.R. Horton (DHI) and Century Communities (CCS) are builders "that fit that description." McCanless likes spec builders, saying they have the ability to dial supply up and down depending on local market demand, providing a higher level of operating flexibility than the to be built operators.