By Lucas Scholhamer
Fool the public once, shame on the housing market — but fool them twice?
Not likely, according to the latest data from the S&P Case-Shiller index, whose 10- and 20-City Composites both indicate that housing prices have dropped dramatically back to their summer 2003 levels. With cautious spenders worried that the decreasing level of residential investment will drag the economy into a double-dip recession, we take a look at some stocks that have been performing well, performing poorly, and some others that have been hit hard but may be a steal if we see an upturn in the market come summer.
Home Depot, Inc. (HD): The world’s largest chain of home improvement stores has certainly capitalized on the dismal housing market, as skeptical consumers increasingly opt to sink some cash into enhancing their current homes rather than risk purchasing tanking real estate. As we noted here, Bill Nygren is a big shareholder. With its sturdy 2. 8% dividend yield and a manageable 18. 69 P/E ratio, Home Depot stock has recently climbed back up from its 52-week low of $26. 62 last July, closing at $37. 56 Friday. Additionally, the retail giant recently announced plans to repurchase $1 billion of its shares as part of an accelerated-buyback program. With shareholders continuing to receive excess cash and the one-year target bid topping $40 per share, investors would be wise to consider adding HD stock to their portfolio.
Lowe’s Companies, Inc. (LOW): Following in the sweat-soaked footsteps of the Home Depot is its most formidable competitor: Lowe’s Companies, Inc. , a similar home-improvement supply retailer for America’s do-it-yourselfers. With a P/E ratio of 18. 63 and a 1. 7% dividend yield, LOW has recovered nicely after its shares hit their $19. 53 low last August, closing at $26. 74 on Friday. George Soros is a shareholder. Despite the fluctuation of the housing market over the last decade, Lowe’s has managed to maintain an average annual earnings growth over 8%, according to the company’s latest annual report of operating results.
Toll Brothers, Inc. (TOL): Unfortunately, not everybody can benefit from the abundance of elbow grease. Toll Brothers, Inc. , a Fortune-1000 luxury home building company that has been developing real-estate for over 40 years in 19 states, has been hit hard by the housing dip. TOL stock slumped again, continuing to fall from their modest $21. 90 peak in mid-February back down to $19. 76 on Friday after a slow recovery from a horrific 2010 summer. TOL shares were trading with a 79. 8 P/E ratio. However, Toll Brothers, Inc. has been trying to compensate for the losses by managing and trading distressed properties, announcing their purchase of $200 million-worth of non-performing real estate loans Thursday morning.
KB Home (KBH): KB Home, a Fortune-500 home builder based out of Los Angeles, has also felt the pain of reluctant potential homebuyers. With a 1. 90% dividend yield, share values continued their 3-month slide, closing at $12. 43 Friday — down over 38% from their 52-week high. The fact that they have kept investors in the dark by delaying their first quarter earnings report until April 5th also provides reason for believing they will drop further. However, the home-building giant is attempting to entice buyers with attractive offers for free, energy-efficient features in new home models. This might give them an edge over competitors when the market picks up again, and if so, these prices may represent a rare opportunity for investors.
Pulte Group, Inc. (PHM): The struggles of the nation’s largest homebuilder illustrate just how the unattractiveness of engaging in the housing market has transcended all social classes. Despite a diverse brand portfolio containing the likes of Pulte Homes, Centex Homes (CPX), and Del Webb — ideally, something for every buyer — Pulte Group has been demolished by the market, posting losses yet again as share values sunk to $7. 48, just over half of where they stood last summer ($13. 91). The company has been widely criticized for acquiring Centex Homes in 2009 for $1. 3 billion. Since then, they have posted profits in only one of the last six quarters.
D. R. Horton, Inc. (DHI): The second largest homebuilder in the nation is also experiencing losses from the housing slump. Stock for this developer and builder of single family homes, townhomes, and condominiums fell yet again on Friday, down 0. 68% to $11. 65. With a high P/E ratio of 135. 47 and a 1. 3% dividend yield, DHI is currently performing under its 50-day moving average of $12. 18. Consistent with the underwhelming performance of other major homebuilders wrestling with the current low demand, DHI has been forced to cut costs where possible, and investors should take note of the affordability of this historically successful company.
NVR, Inc. (NVR): When the market hands out lemons, look to NVR, Inc. for lemonade. This dual homebuilding and mortgage banking company, responsible for the NVHomes, Ryan Homes, Rymarc Homes, and Fox Homes brands, has managed relative success that has eluded others in the homebuilding industry. With stock rising 0. 06% to $756. 42 and a 22. 63 P/E ratio, NVR has managed to avoid the major market fluctuations plaguing other homebuilders partly by focusing their operations in the Washington D. C. area — the only one of the 20 cities where the Case Shiller index indicated a rise in prices in January. The risk-averse company has reported profits for the last 8 quarters.
Beazer Homes USA, Inc. (BZH): Despite a promising January and analyst optimism throughout early March, Beazer Homes USA, Inc. , a single- and multi-family homebuilder in the South and Southwestern United States, has felt the woes of the housing lull. Despite closing Friday up 1. 09% with shares valued at $4. 62, BZH stock has fallen nearly 30% since January and has been struggling to remain stable. Additionally, the company recently settled in a fraud suit where shareholders alleged that managers had been overpaid for their underwhelming performances.
Lennar Corp. (LEN): Despite posting a first-quarter profit, Lennar has seen significant losses in the last week. The Miami-based homebuilder, offering houses for a wide variety of buyers, has reported a recent decrease in homes built and new orders. But unlike many struggling competitors, Lennar’s Rialto Capital company, who invests in distressed real estate, has had significant success as of late (their $11 million earnings last quarter are partly responsible for Lennar’s Q1 profit). LEN stock, with a 35. 97 P/E ratio and a 0. 80% dividend yield, dropped to close at $18. 25 Friday, rounding out a disappointing week for shareholders. But with a 1-year target estimate of $23. 10, this price could be a bargain if the market heats up again in the coming months.
MDC Holdings, Inc. (MDC): Despite modest gains Friday, MDC shares still suffered overall losses for the week in the wake of the latest Case Shiller data, down to $25. 53 from their YTD high of $31. 80 in early February, with a 3. 8% dividend yield. While some analysts don’t foresee MDC profits in the near future, the conservative homebuilder/financial services company’s land-light strategy for purchasing finished lots and its strong liquidity poise MDC for a slow, long-term recovery.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.