Citigroup sees homebuilders beating the S&P 500 over the next month

Citigroup Inc. analysts expect a strong performance from homebuilder stocks over the next 30 days, topping the S&P 500 Index in that stretch.

A gauge of the shares rebounded 0.7% Friday, a day after slumping 5.2%, the most in a month, after hotter-than-forecast inflation data sent bond yields surging.

Citi analysts led by Anthony Pettinari say major single-day declines are historically attractive entry points for builders. Homebuilding stocks have only seen 55 instances of single-day declines of more than 5% since the global financial crisis, according to the firm. 

Of those instances of single-day declines, builders outperformed the broader market over the next 30 days 58% of the time, with the average net performance in all instances being 4%. For the 90 days following large single-day declines, homebuilders beat the broader market 69% of the time, with an average net performance of 16%. And for 180 days following a meaningful slump, they outperformed 78% of the time, with an average net performance of 30%. 

"Looking over the last 20 years (inclusive of the pre-GFC period), the pattern of 30-day, 90-day, and 180-day outperformance is roughly similar," the analysts wrote.  

What's more, builder price-to-tangible-book-value multiples are also attractively low, they note. 

After rallying for the first half of the year, builder shares are hitting a wall as the typical autumn slowdown in real estate, decades-high mortgage rates and macroeconomic pressures drag on performance.