Sometimes profitable trades come from the unlikeliest of places.

And over at Maximum Profit, our system cranked out a name that definitely surprised us — mostly because of the sector in which it operates.

I’m talking about the residential homebuilders.

After a tough 2022, which saw shares of homebuilders take a big hit, things are looking much better this year. Last year the iShares U.S. Home Construction ETF (NYSE: ITB) — a fund chock full of homebuilders — tumbled as much as 40%. This was largely due to a broader market pullback and soaring interest rates, which in turn cranked up mortgage rates.

But now it seems that investors have largely put those worries in the rearview mirror. Just look at ITB’s performance this year…

It’s up over 28% on the year, crushing the S&P 500’s 8.5% return. Who would’ve guessed that?

Clearly, there’s strong momentum for homebuilders. So let’s dive into what our trade is all about…

A Small-Cap Homebuilder With Serious Momentum

The trade we recently made over at Maximum Profit is with M/I Homes (NYSE: MHO).

M/I Homes is a smaller builder, with a market cap of around $1.8 billion. It builds homes in the Midwest (Minnesota, Indiana, Ohio, and Michigan), Tennessee, North Carolina, Florida, and Texas.

Their bread-and-butter is single-family homes for first-time and millennial buyers. But they also cater to empty-nesters and have a luxury line of houses. In other words, they’ll build whatever you want.

M/I Homes released first quarter results on April 26. They crushed it.

• Revenue climbed 16% to $1 billion, a first-quarter record.
• Net income was $103 million, a 12% jump over the same period a year earlier.
• Delivered 2,007 homes, an increase of 10%.
• Average sales prices of homes sold increased by 6% to $486,000.
• Cash from operations checked in at $251 million, a 262% increase over a year ago.

Like I said, the results were great. Investors were pleased and responded by pushing shares up over 5% on April 27.

Where’s The Momentum Coming From?

Strong results like what M/I just published certainly help with the stock’s momentum. It also helps that the stock is trading for dirt cheap. It sports a price-to-earnings multiple of just 3.7. Its five-year historical average is 6.8.

Its enterprise value (“EV”) to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) sits at just 3.2. That’s more than 50% below its historical average of 6.7.

And let’s not forget that the Millennial generation (now the largest, with over 72 million in the group) is entering their prime home-buying age.

Even though interest rates are much higher, people still need homes. And this demand has helped push shares of MHO to new 52-week highs.

Action To Take

Now before you go pile into this one, there are a few things you need to keep in mind. First, an increase in unemployment and/or tough recessionary conditions will likely dampen enthusiasm and ability to buy homes. Second, remember that this is a small-cap stock — and smaller stocks tend to be more volatile than the average larger stock.

With that said, the stock is showing some amazing relative strength, and is cranking out cash flow — which is what we like to see.

If you’re looking for a smaller stock with good upside, take a look at MHO (but consider using a trailing stop loss and setting my profit targets to make sure this one doesn’t run away from you).

In the meantime, I just released a bombshell briefing about cryptocurrencies — and how you can profit…

My team and I think cryptocurrencies will surge again in the coming months. That’s because three “blue chip” cryptocurrencies are getting major upgrades this year, and they could unleash a massive crypto boom…

This could easily be a once-in-a-lifetime chance to take a small amount and turn it into a life-changing gain. Sounds unbelievable, I know… but the numbers don’t lie. Get the details here…