If you're looking for insulation against stiff winds out of Europe, you should consider homebuilders. The beaten down industry took its fair share of lumps during the recession, with major players falling nearly 88% from their 2005 peaks to their 2011 lows last fall.
Fall 2011 Low
K B Homes
D R Horton
But, with the U.S. economy mending and jobs returning, homebuilders are starting to see early signs of sales growth. And, with a notably U.S.-centric revenue stream, the industry offers exposure only indirectly tied to EU woes.
The most recent homebuilder to report earnings didn't disappoint. D. R. Horton (DHI), the biggest builder in terms of volume, notched a 19% jump in orders year-over-year last quarter. Analysts, who remain too pessimistic on builders, were hoping for $0.03 per share in earnings. Instead, they were rewarded with $0.13.
The $40.6 million in income logged a fifth consecutive quarter of profit as closings increased 21%. Homebuilding revenue came in at $935.6 million, good for 27.6% growth. Importantly, the company's backlog finished the period at $1.4 billion, up 25% from last year.
And, while corporate cheerleading should always be taken with a grain of salt, the company's namesake chairman predicts "strong" Q1 sales will yield stronger closings and profits in the back half of the year.
With competitor NVR (NVR) reporting a 31% increase in orders and 33% increase in backlog last week, and housing permits for March reaching a 747k annualized rate in March, up 30% from last year, homebuilders are increasingly attractive. While some will undoubtedly recoil at the current PE ratios on the basket, cyclical investors recognize homebuilders need to be bought when these ratios are high - at least if they want to buy closer to the bottom than the top.