Homebuilder stocks that are still worthwhile

They've been surging this year as the housing market finally revives, so the trick is finding attractively valued shares.

By Jonathan Berr May 29, 2013 9:11AM
The housing market is on a tear. On Tuesday, the closely watched S&P/Case-Schiller Home Price index, which measures prices in 20 cities, posted its largest annual gain since April 2006. Several markets, including Los Angeles, Seattle and Charlotte, N.C., posted their biggest increases in seven years. Helping the market is the surge in consumer confidence, which recently rose to its highest level since February 2008.

Not surprisingly, shares of homebuilders have posted some huge gains. D.R. Horton (DHI), which builds more homes than anyone else, has jumped more than 30% so far this year, while Toll Brothers (TOL), the largest builder of luxury homes, has gained more than 11%. KB Home (KBH) has rocketed more than 46% and even expects to be profitable this year, reversing a 2012 loss of $1.56 billon. Lennar (LEN), which last quarter tripled earnings, has risen more than 8%.

 

However, you can still find some compelling values among these stocks even though investors are already factoring the improving housing market into their prices.

 

Home under construction (© Corbis)Take D.R. Horton. CEO Donald J. Tomnitz recently said the first half of its 2013 fiscal year was "phenomenal" and that the company expects the second half to be "even better." The stock trades at price-to-earnings multiple of 8.52, the lowest of its peers. Analysts have a 52-week price target on the stock of $27, about 4% higher than where it currently trades.

 

Toll Brothers and Lennar are also fairly cheap, trading at multiples of about 13. They're also both trading under their 52-week price targets. Toll Brothers recently noted that the average price of homes it delivered rose 3.6% to $577,000. The Horsham, Pa., company would give investors exposure to the luxury consumer, although Toll disappointed earlier this year.

 

Lennar, which has said its spring selling season was off to a strong start, pays a dividend and Toll does not, which makes it a good second choice after D.R. Horton in this sector.

 

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
14Comments
May 29, 2013 10:28AM
avatar

Housing?  New housing builds and smoke and mirror investment schemes is what got us in this mess. These clowns are/were a huge part of the problem, basically building housing for investors driven by cheap and easy money, greased by congress and the Fed and administered by Goldman, Leahman et al.  The US must fundamentally and structurally change, which we have not.  Not one thing has changed since 2008 except we spend more and borrow more digging ourselves deeper into a Greece-like situation.  The lefties shouted during both of the last two elections, "we can't go back to the failed Bush policies" - hey folks, the #1 policy of Bush that caused the majority of the problems was the Fed policy; which the new pres has not only embraced but has 10-tupled down on.  So when you hear, "we can't go back to the Bush era", tell them to shut up, we already there times 10.

May 29, 2013 10:11AM
avatar
Housing is going nowhere. Materials are too expensive to make a profit. And if the free money is withdrawn even a little, the 2007 crash will be nothing compared to what will come. No matter how much Bernanke intervenes, eventually, prices will come down to what the average guy can afford at an 8% interest rate, even in California. If he wants to help the economy why doesn't he intervene in the labor market and raise people's stagnant wages, or lower prices of gas, food, etc. Now that would help.
May 29, 2013 9:22AM
avatar
oh yea, keep going!!  Doesn't matter if we're trillions and trillions in debt as long as you don't think about it.  Don't worry be happy.
May 29, 2013 11:12AM
avatar

Big home builders aren't going anywhere. Renovators and new companies specializing in affordable alternative and profit-generating home add-ons will have the legs. The future of housing is deterent on our ability to break free from oil reliance and create infrastructure that doesn't command most of our income for transportation and shelter costs.

 

Anybody notice that Fat Cat- an obvious retirement broker shyster- never seems to be with the times or the prevailing trends? It's pretty SCARY to think that he/she/it handles other people's monies. Makes you wonder if any of his clients are coherent or actually know what he posts on these blogs.

May 29, 2013 11:38AM
avatar

Housing is booming in some parts of the country.Much of Florida is doing good.Here in

the Southwest, houses are at all time highs.

May 29, 2013 11:25AM
avatar

Is it just me that thinks that MSN puts out these articles at the WRONG TIME ?

 

Going into the summer months is the absolute worst time for housing.

HELLO-HURRICANE SEASON STARTS IN JUST 3 DAY'S !!

 

And if you live in the mid west, you don't buy a home during tornado season-or the west during the fire season. people usually wait until that seasonal weather is past them.

 

 

May 29, 2013 11:11AM
avatar
If you are complaining about the price of gas, and wages, maybe you should get your head out of the sand, and travel a littlie!
May 29, 2013 12:08PM
avatar
Yeah I worked in Construction management for these boneheads...All they cared about was their stock and supporting bad home loans to support their loan providers. I was part of the over building homes process, watching communities grow from a vacant lot to hundreds of homes.

Then when the economy failed I watched every family I moved into their homes lose them a year or two later. I watched happy families turn to empty divorces and tearful children...and you can thank the banks and gov't for destroying our society.

You can easily blame the people for buying homes that were too expensive or you can blame the true culprit the banks, builders and our own government. They are the ones who created and allowed loans that were not affordable. They were the ones who created the bubble and built a home worth $100k and sold it for $300k causing all existing homes on the market to triple in value.

At that time if you wanted to buy a home you had the choice of paying for high rent in some crappy apartment or to purchase a new home with a high mortgage. Everyone wanted the white picket fence and the American Dream.

I believe the banks wanted their money back from all the unsecured debt we the people defaulted on and claimed bankruptcy on we never paid back. One way to get a few bucks back was to give us shitty loans, remove the jobs and there went your $20k downpayment.


Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT

Killer Companies is a look at companies in the headlines that are killing it and getting killed in the market today.

MARKET UPDATE

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min