Homebuilders hurt by Fed policy
These stocks' ratings flip-flop on share price volatility as rising interest rates offset positive housing news.
We have been seeing improved housing data over the last two months, but the Federal Reserve threw cold water on the housing market Wednesday when Chairman Ben Bernanke hinted the Fed could begin to be unwind quantitative easing in mid-2014. U.S. Treasury yields, and hence mortgage rates, moved higher.
My benchmark for the housing market is the PHLX Housing Sector Index (HGX) (177.41), which is the first close below its 200-day simple moving average since Dec. 20, 2011. On May 20, the housing index set a multi-year high at 210.01 up 22.6% on the year. Currently, the index is up just 3.6% year to date, and is 15.5% below the May 20 peak.
The National Association of Home Builders Housing Market Index rose eight points to 52 in June, above the neutral 50 mark for the first time since April 2006. This is a clear sign that homebuilders are seeing improved demand for newly-built single family homes.
The NAHB projects that total housing starts would top the million mark this year for the first time since 2007. Part of the renewed demand for new homes is a low inventory for existing homes.
Housing starts rose 6.8% in May to a seasonally adjusted annual rate of 914,000 units primarily due to increased production of multifamily homes. While builders remain concerned about the cost and availability of building materials, lots and labor, bad weather was blamed for the dampened pace of single-family housing starts, which came in at 599,000 versus that important 600,000 pace. The NAHB expects the market for new homes to continue to rise at a slow but steady path of recovery.
In Friday's table of stocks, eight of 11 are overvalued and all had double-digit gains of 14.0% to 135.8% over the last 12 months. Over the next 12 months, three are projected to be lower by as much as 4.9%, and six are projected to gain between 6.5% and 10.6%. Caution flags are up as the 12 month trailing price-to-earnings ratios remain elevated between 17.8 and 44.9. Five are above their 200-day simple moving averages, one closed at its 200-day and five have fallen below their 200-day on the risk of reversion to the mean.
OV/UN Valued:Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.
VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.
Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.
Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.
Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.
Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.
Risky Level: Price at which to enter a GTC limit order to sell on strength.
Beazer Homes (BZH) ($18.51 vs. $20.00 on June 4) has been upgraded to buy from hold as the stock fell from its 2013 high set at $23.29 on May 10. My annual value level is $13.95 with a weekly risky level at $25.14.
DR Horton (DHI) ($21.31 vs. $23.78 on June 4) peaked at $27.74 on May 15. My semiannual value level is $20.50 with a quarterly pivot at $22.96 and monthly risky level at $24.98.
Hovnanian (HOV) ($5.88 vs. $6.05 on June 4) peaked at $7.43 on Jan. 2. My quarterly value level is $3.68 with a semiannual pivot at $6.00 and a weekly risky level at $7.16.
KB Home (KBH) ($19.78 vs. $21.50 on June 4) peaked at $25.14 on May 15. My quarterly value level is $13.06 with an annual pivot at $22.95 and monthly risky level at $23.99.
Lennar (LEN) ($34.04 vs. $39.23 on June 4) has been upgraded to buy from hold as the stock fell from its 2013 high at $44.40. My semiannual value level is $25.70 with a semiannual pivot at $36.03 and quarterly risky level at $40.95.
MDC Holdings (MDC) ($33.08 vs. $37.33 on June 4) set its 2013 high at $42.41 on Jan. 29. My semiannual value level is $28.66 with a quarterly pivot at $33.81, and monthly risky level at $36.26.
M/I Homes (MHO) ($23.08 vs. $25.23 on June 4) set its multi-year high at $29.07 on Jan. 9. My semiannual value level is $19.99 with a monthly risky level at $29.47.
PulteGroup (PHM) ($18.87 vs. $21.32 on June 4) set a multi-year high at $24.47 on May 15. My quarterly value level is $17.40 with a monthly risky level at $23.75.
Ryland Group (RYL) ($38.65 vs. $45.18 on June 4) has been upgraded to buy from hold as the stock fell from its 2013 high set at $50.42 on May 20. My quarterly value level is $36.89 with a monthly risky level at $49.22.
Standard & Pacific (SPF) ($8.36 vs. $8.73 on June 4) set its 2013 high set at $9.97 on May 14. My quarterly value level is $7.61 with a monthly risky level at $9.41.
Toll Brothers (TOL) ($31.70 vs. $33.59 on June 4) set a multi-year high at $39.25 on May 22. My annual value level is $30.91 with an annual pivot at $31.95 and quarterly risky level at $34.31.
At the time of publication the author held no positions in any of the stocks mentioned.
More from TheStreet.com
Ask yourself a few questions.
is our population increasing now and will it continue in the future?
are interest rates below the average over the last 40 years?
will your house payment be lower now than if you bought in 2006?
have you bought anything lately that costs more now than it did last year?
Now, should you buy a house?
I'll say it again...In the future, these will be referred to as "the good old days" by real estate investors for decades to come.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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