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Small-Cap Home-Builder Stocks Grasping At Straws

|Includes: Beazer Homes USA, Inc. (BZH), HOV, KBH, LEN, TOL

Jobless Claims, Fed "Speak" Move BZH, KBH, HOV, LEN Higher


Hey, it might seem like we’re grasping at straws, but right now, straws seem pretty attractive.

Home-builder stocks traded higher today after the Labor Department reported initial jobless claims fell to the lowest level since January in the latest week. Plus, the Fed made a couple statements and under-the-radar moves that should keep mortgage rates low and could kick-start activity in the housing market.

The iShares Dow Jones U.S. Home Construction Index Fund, a builder exchange-traded fund that had fallen the previous four sessions, was up about 2% in midday trading. The sector's top percentage gainers included Beazer Homes USA Inc. (NYSE: BZH), up 15.17%.

KB Home (NYSE: KBH) reported a narrower quarterly loss of $78.4 million on Friday, or $1.03 a share, compared with a year-earlier loss of $255.9 million, or $3.30 a share.

The company was aided by smaller charges as net orders again outpaced closings. While off 31% from a year earlier, the company's orders surged nearly 60% from the previous quarter. Its stock rose 9% in mid-day trading today.

When Miami-based Lennar (NYSE: LEN) disseminated its second-quarter earnings, the good news was that its backlog figure rose 25% sequentially from Q1. However, this bed of roses also had some thorns.

First and foremost, the company recorded a loss in the period. This is a big detractor for this stock, and this would have to turn around in order for my interest in the stock to perk up. Unfortunately, however, analysts aren't expecting the company to generate meaningful profits anytime soon. In fact, it's expected to lose $1.04 in 2010.

And it's not just Lennar: other big names in housing are also expected to drip red ink. For example, Hovnanian (NYSE: HOV) is apparently expected to lose money this year and next, although HOV rose 8% on today’s news. It has what I'd call another big negative and that's that it trades under $5 a share ($1.95); some brokers will shy away from stocks under $5.

Meanwhile, high-end Toll Brothers (NYSE:TOL) is expected to lose money this year and 2010.

Although the bad news seems overwhelming, you need to keep these homebuilders on your radar. Many are beat up, cheap and very capable of profiting under the right circumstances. The real estate market will rebound. It’s just a matter of getting in these stocks ahead of the herd but after any more substantial drops.

It’ll be tricky, but I’ll keep my eye on them for you.


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