Supply and demand are the key elements to understanding economics. It can also be the key to understanding an investment opportunity. Right now, demand for semiconductor chips for AI is soaring. That will make those companies more profitable over time. And that’s why their share prices continue to soar.
But that’s just one part of the overall market. Other sectors likewise are seeing some big shifts in supply and demand. And those shifts can also lead to big profits.
One such sector is the homebuilder stocks. Housing is a tight market right now. Demand is also likely pent up due to high interest rates, which look set to start declining later in the year.
That could bode well for homebuilders, which are seeing strong prices already as they bring new supply to market.
In the homebuilder sector, KB Home (KBH) is well positioned.
Although shares are already up 34% over the past year, KB Home is still inexpensive at 9 times forward earnings. Plus, shares trade at less than 0.9 times their price-to-sales.
Action to take: Investors may like shares here or on a pullback. At current prices, KB Home pays a 1.5% dividend.
For traders, the October $75 calls, last trading for about $3.75, could see mid-double-digit returns on a continued rally over the summer.
Traders should look to take profits before getting into the autumn, as markets tend to perform their seasonal worst in September and October.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.