Firms to watch with housing shortage set to benefit homebuilder stocks

The double whammy of a declining stock market and rising interest rates has been pummeling homebuilder stocks this year, resulting in rock-bottom valuations.

Those valuations make housing stocks look like the worst home in a bad neighborhood. But in reality, the industry is the cheapest house in an undervalued neighborhood.

In early April, the average forward price/earnings ratio of homebuilder stock prices to projected 2022 earnings was only four times earnings, the lowest of any industry in the entire U.S. stock market. This ratio dipped to 3.5 in mid-May, when the iShares U.S. Home Construction ETF (ITB) was down about 30% year-to-date. Shares…