1 Consumer Discretionary Stock That Should Be on Every Investor's Holiday List
Key Points
Moderating interest rates could lead to stability in housing demand, positioning Lennar for a recovery next year.
The stock is trading at a valuation that has historically preceded a recovery in the share price.
- 10 stocks we like better than Lennar ›
Higher interest rates are starting to moderate and could serve as a significant catalyst for the homebuilding industry. One of the top housing stocks that could rebound sharply in 2026 if the Federal Reserve continues to lower interest rates is Lennar (NYSE: LEN).
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Lennar stock has fallen 32% from its previous high. Here's why it should be on your buy list right now.
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It's time to buy housing stocks
Homebuilders are under pressure, but this is usually the time these stocks become undervalued. Lennar reported a net margin of 9.5% on home sales in the third quarter, but weak demand is weighing on revenue, which decreased by 6% year over year.
However, management expects interest rates to moderate in the new year. The 30-year mortgage rate is currently 6.19%, which is just above the 6% level that could lead to stability in housing demand, and therefore, position Lennar for a return to revenue growth if rates continue to fall.
When the housing market turns around, Lennar stock should climb to new highs. Management has made adjustments to the business during the downturn that it expects will drive strong long-term cash flow growth.
The stock is currently trading at a price-to-sales (P/S) multiple of 0.96. A P/S ratio under 1 has historically been the best time to buy Lennar stock and usually precedes a rebound.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lennar. The Motley Fool has a disclosure policy.
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