2 Homebuilders That Are Pure Value Plays In A Strong Macro Environment

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Includes: BZH, HOV
by: FinanceSwipe

Summary

Homebuilders set to benefit from macro environment.

BZH and HOV both undervalued fundamentally.

Both micro stocks with market capitalisation $220 - $285 million.

2 Homebuilders That Are Pure Value Plays In A Strong Macro Environment

Homebuilders are set to benefit from low interest rates that are expected to go up (there will be a rush to buy new homes before they go up.) This makes going long Homebuilders a good option at the moment, there are some particularly interesting companies based on fundamentals.

Beazer Homes (NYSE:BZH)

Beazer is a homebuilder in the United States. The company was founded in 1985 and is headquartered in Atlanta, Georgia.

I always see insider buys as a bullish sign for a company. It shows that the employees believe the company is undervalued or there would be no reason to buy the shares. In this case the CEO Allan Merrill purchased 10K shares and the CFO Robert Salomon purchased 9.5k shares. The stock has declined 70% since its 2015 high in June. A sell-off such as this one is overdone and provides a buying opportunity.

The fundamentals are also attractive with a P/B that is the second lowest of all in the 23 US homebuilder stocks - at 0.43.

I honed in the filter to look for companies with a market cap of $50 mill - $300 mill.

BZH has some of the cheapest fundamentals for homebuilders in this bracket. It has the lowest PEG at 0.28, second lowest P/S at 0.17 (the first lowest covered in this article) and a Forward P/E of only 5.39. The company is very strong fundamentally.

Hovnanian Enterprises (NYSE:HOV)

HOV constructs and sells homes in the United States. It also provides financial services comprising of mortgages for homeowners.

Hovnanian is trading a 6.4x forward earnings ratio. This is low just like BZH - in an industry where the average is 12x. There are also huge growth projections that make the stock even more attractive. Analysts are projecting revenue growth of 35% next year vs an industry average of 12%. There is also the EPS growth that is expected to be 322% next year vs the 11% average in the industry.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.