Listen Up - Home Builder Stocks Are Cheap

Includes: KBH, LEN, PHM, TOL
by: Regarded Solutions

Opportunities come and opportunities go. We tend to miss more than we take. I suppose it is human nature, but there are times when an opportunity comes knocking on the door a second time. I guess the question will be; will we open the door and let opportunity in, or just make believe we are not home?

Wow, I just read that paragraph over again, and I am actually impressed! Sometimes I get so carried away with writing that I come up with some "cute" opening statements. This one is pretty good. I think this article is worth sharing with everyone you know.

Listen Up! Home Builder Stocks Are Cheap

We are being smacked in the head with an opportunity in the housing market that has been in the worst decline since 1929. Prices of homes have fallen off of a cliff. Foreclosures have been front page news for 4 years straight, just about everyday. Homes for sale on the market cannot even compete with the back log of inventory that seems to continue to rise every month.

I smell MONEY. It is obvious that this entire sector has been literally hated by individual investors for 5 years. That being said, some of the smarter money has actually moved these stocks up by 50-75% over the last 6 months or so, and now individual investors are saying; "Darn, I missed this opportunity"!


I believe that the opportunity has just knocked for the second (maybe 3rd) time. I will take my shoe off and bang it on the table to shout that we should be looking at some of the stocks in the sector and consider buying them, now that they have pulled back a bit.

I have written a few articles on this topic; this being the most recent, and believe it or not I wrote one before one of the major upward moves way back in January when most folks thought I was a crackpot. Well actually the stocks had moved up prior to that so I am exaggerating, but not by that much.

The Big Four

Pulte Homes (PHM): Price: $8.39/share, Dividend Yield: NA, ESS Rating: Neutral

PulteGroup, Inc. (NYSE:<a href='' title='PulteGroup, Inc.'>PHM</a>)

Pulte has been on a roll of late and the share price jumped Wednesday. That's nice, but 5 years ago the price was $27.98/share. Could we see that price again? I think it will take time, but I can see a $16.00 price within 12 months.

Read what this news report states;

"Shares of U.S. home builders rallied on Wednesday after a Wells Fargo analyst's research report said data from 20 select markets nationwide are showing strength across the board.

"For the third consecutive month, our survey points to an improvement in orders suggesting 2012 may be the long-awaited recovery year for housing," the note said.

How is that for a loud knock at the door?

Lennar (LEN): Price: $25.75/share, Dividend Yield: .75%, ESS Rating: Neutral

Lennar Corp. (NYSE:<a href='' title='Lennar Corporation'>LEN</a>)

Five years ago the share price was $45.49. I believe we will see that price again, but within that 12 month time frame I think we could see $35.00.

The article further states:

"Sales managers suggested there is a sense of urgency in the marketplace as buyers anticipate higher home prices and/or mortgage rates," the report said.

That sentiment seems justified, as the report further concluded that relative to expectations, pricing in March improved versus February, with 36% of respondents increasing base prices, versus 30% last month. "Not since April 2006 has our survey shown such strong pricing," the report said.

Toll Brothers (TOL): Price: $22.68/share, Dividend Yield: NA, ESS Rating: Neutral

Toll Brothers Inc. (NYSE:<a href='' title='Toll Brothers Inc.'>TOL</a>)

The "top notch" builder of higher priced homes is also well positioned across the nation, especially in the areas that are showing the best improvements.

The report goes on to note:

"Regionally, the data show that the strongest markets in March were Phoenix, Northern California, Chicago, Denver, and Indianapolis. Philadelphia, Orlando and Tampa were the weakest.

"March historically is the most important month of the year for new home sales, which makes this month's results even more significant as it suggests momentum is building, which could further motivate on-the-fence buyers," the report concluded.

Take a wild guess where TOL is strongest. Five years ago the share price was $30.00 and I believe we could see that within 12 months.

KB Home (KBH): Price: $8.19/share, Dividend Yield: 3.10%, ESS Rating: Neutral

KB Home (NYSE:<a href='' title='KB Home'>KBH</a>)

Five years ago the share price was $45.00. I think we could easily see $15-20.00 within 12 months PLUS we have a sweet 3.10% Dividend yield while we wait.

Here is some further evidence right from the HUD Secretary, Shaun Donovan in this news report and video. He states the following:

"There's a broader sense we are poised for a stronger, consistent recovery," ..... "If we can continue to see stronger sales, cut the number of folks falling into foreclosure [and] make sure adequate credit is available, then we've set the stage for a more sustained recovery starting this year."

Who am I to argue with the Secretary of HUD? (Plenty of folks will though)

Here is what the bearish side states:

Bears note that national home prices are still falling, albeit at a slower pace, while buying a home is unthinkable for millions of Americans suffering from bad credit, tougher lending standards and high unemployment. In addition, many experts predict a massive "shadow inventory" of homes will come on the market at the first sign of a sustained bottom and believe foreclosures will spike again now that the $26 billion settlement with big banks has been finalized.

We all know that there have been plenty of predictions as to when the housing recovery will happen. I think we are just beginning and isn't that the time we want to buy shares in one or two of the best companies?

My Opinion

I think we should answer that second knock of opportunity at the door. Why wait for the stampede? Getting in as early as we can, with signs of life around us, is the way to make money in investing.

Let's take a look at the companies I have noted. Knock, knock.

Disclaimer: *Please be sure to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any security and is strictly the author's opinion.

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