By Jon Birger

(MONEY Magazine) – It's not easy recommending a sector that's already up 50% for the year. But that's exactly what we did last August when we recommended home builders. It turned out to be the right call. The stocks of the seven largest builders have risen an average of 35% since August.

How did our picks fare? Very well, though they weren't quite as astute as our call on the sector. We liked Centex, up 46%; Toll Bros., up 48%; and one laggard, NVR, up 6%. We singled out Pulte Homes as one to avoid. Pulte is up 44%. In hindsight, our concerns about Pulte's weak international business were overblown.

On the heels of such a stellar 2003, home builders might seem ready for a breather. We don't think so. Demographic trends bode well for continued demand, and publicly traded builders continue to grab market share from private developers. Builders remain cheap, with an average P/E of 9. Says analyst Craig Kucera at brokerage Friedman Billings Ramsey: "The fundamentals are still very, very positive." --JON BIRGER