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The research team at Hedgeye Risk Management recently produced a report on the housing market titled "Housing: Is Housing's Momentum Slowing?" (shorter version found here, subscription version here) The article's main takeaway is that production-dependent housing is weakening, while transaction-based plays (mortgage insurers and banks) continue to gain momentum.

This may sound unfavorable for housing construction, but if you associate with the term "contrarian investor" you may be intrigued by the five following homebuilding stocks, all undervalued by EPS trends.

We created a screen on companies in the residential construction sector. We looked for those that appear undervalued relative to EPS trends. Based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred. We screened for those exhibiting this mismatch between changes in EPS estimate and price.

To give you further confidence, we've included the top 2 holders of these stocks.

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

The List

Interactive Chart: Press Play to compare changes in the 1-year return over the last two years for the stocks mentioned below.

1. DR Horton Inc. (NYSE:DHI): Operates as a homebuilding company in the United States.

  • Market cap at $7.05B, most recent closing price at $21.93.
  • The EPS estimate for the company's current year increased from 0.88 to 1.01 over the last 30 days, an increase of 14.77%. This increase came during a time when the stock price changed by 9.89% (from 21.53 to 23.66 over the last 30 days).
  • The top 2 holders of the stock are FMR, LLC., and T. Rowe Price.

2. MDC Holdings Inc. (NYSE:MDC): Engages in homebuilding and financial services businesses in the United States.

  • Market cap at $1.78B, most recent closing price at $36.58.
  • The EPS estimate for the company's current year increased from 1.53 to 1.72 over the last 30 days, an increase of 12.42%. This increase came during a time when the stock price changed by 2.31% (from 39.04 to 39.94 over the last 30 days).
  • The top 2 holders of the stock are CVentures, and State Street Capital.

3. NVR Inc. (NYSE:NVR): Operates as a homebuilder in the United States.

  • Market cap at $4.81B, most recent closing price at $980.0.
  • The EPS estimate for the company's current year increased from 48.55 to 54.58 over the last 30 days, an increase of 12.42%. This increase came during a time when the stock price changed by 6.31% (from 978 to 1039.7 over the last 30 days).
  • The top 2 holders of the stock are Pennant Capital Management, and BlackRock Fund Advisors.

4. Ryland Group Inc. (NYSE:RYL): Operates as a home building and mortgage-finance company in the United States.

  • Market cap at $1.55B, most recent closing price at $34.29.
  • The EPS estimate for the company's current year increased from 2.02 to 2.17 over the last 30 days, an increase of 7.43%. This increase came during a time when the stock price changed by -1.46% (from 39.07 to 38.5 over the last 30 days).
  • The top 2 holders of the stock are FMR, LLC., and BlackRock Fund Advisors.

5. Standard Pacific Corp. (NYSE:SPF): Operates as a diversified builder of single-family attached and detached homes in the United States.

  • Market cap at $1.61B, most recent closing price at $7.54.
  • The EPS estimate for the company's current year increased from 0.29 to 0.32 over the last 30 days, an increase of 10.34%. This increase came during a time when the stock price changed by 3.5% (from 8 to 8.28 over the last 30 days).
  • The top 2 holders of the stock are Matlin Paterson Global Advisers, and Wellington Management Company, LLP.

*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: 5 Homebuilders Currently Undervalued By EPS Trends