Catch the housing rebound before it's too late

Astute investors got in at the ground floor, but there are still opportunities in homebuilder stocks.

By TheStreet Staff Feb 26, 2013 12:21PM

thestreet logo By Debra Borchardt

Savvy investors began buying homebuilder stocks when everything about their earnings smelled. No one was buying new homes, banks weren't lending and there was concern that some of these companies might go under.

Contrarians, though, gave it a shot and have been handsomely rewarded. In the last year, Toll Brothers (TOL) is up 47%, Ryland Homes (RYL) has gained 87% and KB Homes (KBH) has advanced 51%, to name just a few homebuilders enjoying improved numbers.

The latest U.S. economic data showed that existing home sales rose in the second half of 2012, lifting the year to its best total since 2009.

The only region that registered a sales decline was the West and that was due to inventory constraints, said RDQ Economist John Ryding. The supply of existing home sales in January hit its lowest level since March 2005, he added. The big picture, therefore, is encouraging: Home prices have increased 12% over the past year.

So, if investors are now finally comfortable that the upturn in housing prices portends a genuine recovery rather than just a head fake, have they lost the chance by waiting too long?

The established homebuilder names may already have made their big moves, so investors need to look for names that institutional fund managers have overlooked.

TRI Pointe Homes (TPH) is a good example. The Irvine, Calif., homebuilder went public Jan. 31 and has gained 5.8%. TRI Pointe mostly builds in California, which was ground zero for toxic mortgage companies like Countrywide Financial and IndyMac. It may seem difficult to believe that Californians are back to buying newly built homes, but TRI Pointe successfully sold its Sagebluff housing development in Riverside CA and built 100 homes in its first year of business. TRI Pointe has said it plans to start its first development in Colorado in the spring. At present, the company owns 13 communities, 8 of which are actively selling. TRI Pointe wrote in its prospectus, "Growth in sales of new homes have outpaced growth in sales of existing homes over the same period, increasing 23% versus 8% for existing homes."

Additionally, the executives at TRI Pointe have worked together for over 20 years, so these aren't flippers or teachers turned homebuilders. Chairman Barry Sternlicht, who heads Starwood Capital Group is also the CEO of Starwood (STWD). The company has attracted coverage from as many as three analysts, which is far fewer than Toll Brothers, with at least 21 analysts covering that company. In other words, TRI Pointe may be relatively unknown among retail investors. Institutional ownership is at 45%. Follow the smart money.


Home under construction copyright CorbisAnother new homebuilder stock is Boise Cascade (BCC), which is already up 30% since going public on Feb. 6. Boise Cascade presents a different way to play homebuilding as the company is the second-largest manufacturer of laminated veneer and engineered wood products used in I-joists for building homes. They're also the second-largest manufacturer of plywood in the U.S. The company wrote in its prospectus, that it was well positioned to "take advantage of the recovery that we believe is underway in the U.S. housing market."

Boise Cascade actually grew market share during the housing downturn and also argues that the industry's prospects are improving. "Housing starts increased substantially in 2012 and, as a result, demand for the products we manufacture and distribute has also increased. U.S. single- and multi-family housing starts were 0.87 million in September 2012 on a seasonally adjusted annual rate basis, an increase of 35% from September 2011." Boise also hasn't captured the attention of research analysts making this another "under the radar" stock.

Taylor Morrison hasn't gone public yet, but it's definitely one to put on your watch list. Taylor Morrison Home Corporation is one of America's top ten homebuilders. The Scottsdale, Ariz., company had planned to raise $250 million but after TRI Pointe's success in public markets, Taylor Morrison's offering has been increased to $500 million. A 75-year-old company, Taylor Morrison generated $1.3 billion in sales for the last 12 months ending Sept. 30, according to a federal filing. Taylor owns homes in Texas, Florida, and California, as well as Phoenix.

Taylor Morrison wrote in its prospectus, "We believe that a strong fundamental U.S. housing recovery is underway on a national basis, driven by consumers who are increasingly optimistic about their economic prospects and supported by several positive economic and demographic factors." Taylor Morrison went on to write that, "the increase in new building permits is consistent with an average of 30% and 48% year-over-year growth in new home orders and backlog reported by the top 10 public homebuilders (ranking based on 2011 revenues reported by Hanley Wood.)"

The company plans to go public on the New York Stock Exchange, though the price range has not been made public. The buzz is already building among institutional money managers looking for new names for their homebuilding portfolios. Without analyst coverage, these names tend to stay low on the radar screen, but if you read the prospectus, you'll see strong fundamentals to support the positive stock performance.


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16Comments
Feb 26, 2013 1:21PM
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Rebound?   LOL.... The Fed has printed 58% more money in the last 4 years, that means a house would need to have increased 58% in value just to keep up with inflation.

A 300,000 house in 2008 would need to sell for more than 450,000 today just to have kept up with the FED.   I see no rebound...  Just a continued decline in inflation adjusted dollars...  Not counting the high taxation, upkeep, etc...
Feb 26, 2013 2:17PM
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"Catch the housing rebound before it's too late"


Ahhhhh - Hahahahahahahahahahahahahaha! 

Feb 26, 2013 2:12PM
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"Home prices have increased 12% over the past year." 
I THINK NOT.

I don't believe houses are actually appreciating much yet. We have fewer foreclosures and short sales than a couple of years ago. Those distressed sales always sell for less, bringing the average sales price down.

Clear out some of the foreclosures, and it looks like prices are going up. But they really aren't. If you look at normal (not distressed) housing for sale, it has not changed much in the past couple of years.
Feb 26, 2013 1:24PM
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We need to slash far more than the 85 Billion Obama's sequester will cut...  That is less than 1/12 of what is needed.   Let the cuts begin.  And there should be another 85 billion before they allow the government to stay open at the end of March....  and another 85 Billion before raising the debt ceiling again....   That will leave only about 900 Billion more in cuts needed....'


End the democrats massive spending....  Obama got his tax cut on the rich already...  Check your pay check to see if that is not true...  the problem is he considers you rich....
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Iron Mike 76.......You are correct The President can not enact legislation. However, when presented with a bill from Congress he has 3 choices. 1. He can sign the bill and it then becomes law, 2. He can let the bill set on his desk for 10 days, not counting Sunday, and the bill then becomes law, or 3. The President can veto the bill and send it back to Congress. Congress can over ride the veto and the bill will become law. If The President either signs the bill or takes no action he becomes the person responsible for the law. On August 2, 2011 President Obama signed "The Budget Control Act of 2011" and it became (Pub.l. 112-25, S. 365, 125 Stat. 240, enacted August 2, 2011). The law created several complex mechanisms one of which was automatic budget sequestration. He now wants to blame Congress for the situation that he created. If President Obama had vetoed the bill and Congress over rode the veto then I would agree that Congress should be blamed. IMHO it is time he accept responsibility for his actions.
Feb 26, 2013 1:13PM
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What is the Campaigner in Chief doing today while the Sequester decision is in limbo?

(For those who voted for Obo - that was a rhetorical question)

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Rebound the average house price is increasing merely because the number of houses sold to the super rich e.g. above $500,000 have doubled in the past year.

 

Gee when you sell one apartment built in 1912 for $10,000 for $89,000,000 in New York of course the average of the other 25 houses you sell in New York is going to way up in price.

 

Duh we are still having half of Americans make an average wage of $16,000. When you include the 1 percenters and the rest of us the average wage merely goes up to about $38,000 a year.

 

Yet prices are set for someone making $125,000 or more.

 

The US economy is busted and will remain busted until asset prices come way down but no Bernanke is pumping trillions of dollars into Wall Street to keep stocks inflated.

 

The US economy could recover if they create 125,000,000 new jobs paying $125,000 a year but the Wall Street bankers would rather increase their $250,000,000 wages to $2,500,000,000 before they would hire anyone above minimum wage.

 

90 percent of all new jobs have been for minimum wage. And to add insult to injury they only work the person 29 hours a week to deny him benefits. So they are only paying $10,000 a year.

 

Pretty much the whole US economy system is still falling apart and they are putting trillion dollar paint job on it to make it look like it is going fine when it is not.

Feb 26, 2013 4:57PM
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Is this an advertisement to buy homes?

Feb 26, 2013 12:52PM
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So catch the housing rebound but sequestration is going to kill the economy? Sounds to me like pump and dump is alive and well. Housing stocks have already rebounded.
Feb 26, 2013 2:09PM
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MIRAGE GUY:Unles it`s something negitive about Obama you don`t believe it.You

LOG CABIN REPUBLICANS are a sad group of racist,bitter sad sacks.You have

a right to your gay lifestyle.

Feb 26, 2013 3:29PM
avatar
Been banned from posting for a year, opened a new account just checking to see if I can post again.
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