Breaking News

Are The Homebuilder Stocks The Deal Of The Year?

By Zacks Investment ResearchStock MarketsAug 14, 2019 12:38AM ET
Are The Homebuilder Stocks The Deal Of The Year?
By Zacks Investment Research   |  Aug 14, 2019 12:38AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

  • (0:30) - Mortgage Loans Hit New Lows Since 2016
  • (4:30) - The negative Side of the Housing Market
  • (8:45) - Tracey’s Top Stock Picks
  • (26:15) - Episode Roundup: KBH, PHM, MHO, LEN, TOL

Welcome to Episode #189 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

This week she’s going solo to discuss the developments in the US housing market and the homebuilder stocks in 2019.

Goldilocks Conditions for the Homebuilders?

With the 10-year treasury falling to levels last seen in 2016, that means that mortgage rates have also fallen under 4% again to multi-year lows.

Additionally, the job market remains strong with unemployment under 4%. The consumer feels confident and that usually means that they will look to make big purchases, like homes.

Could low mortgage rates and a strong job market be the perfect combination for a boom for the homebuilders?

And if so, where should investors be looking?

The Homebuilder Stocks are Cheap

Despite the industry seeing a 30% gain on the year, thanks to the stocks being hit hard in the December 2018, they are still cheap.

Of the five homebuilders highlighted on the podcast, all of them are trading under 10x earnings. Other than retail and energy, it’s hard to find another industry as cheap.

But Are They Buys?

1. KB Home (NYSE:KBH) trades with a forward P/E of just 9.8 yet earnings are expected to rise 56% this year. In the second quarter, a weak coastal California market was countered by stronger orders in Denver and Houston. Will lower mortgage rates help to turn California around?

2. PulteGroup (NYSE:PHM) trades with a forward P/E of just 9.2. Orders were up 7% in the second quarter as first-time home buyer orders surged 30%. However, active-adult concepts declined 7% as those buyers were more cautious coming out of the housing and stock market weakness of 2018.

3. M/I Homes, Inc. (NYSE:MHO) is even cheaper, with a forward P/E of just 8.3. It also doesn’t have California exposure but is still fighting the industry-wide issue of higher incentives and discounting. However, in the second quarter, the company said those incentives have not gotten worse.

4. Lennar Corp. (NYSE:LEN) saw elevated selling incentives and higher land and labor costs which ate into margins. The higher end coastal communities in California were sluggish. It too is cheap with a forward P/E of 9.3 but earnings are expected to fall 16% in fiscal 2019.

5. Toll Brothers Inc. (NYSE:TOL) is about to report its third quarter results on Aug 20. In the second quarter, it saw higher selling incentives and also had west coast issues. Orders dropped 45% in California in Q2 but mortgage rates have fallen significantly since the spring. Shares are trading at just 9.1x forward earnings.

Are these stocks hidden gems?

Find out about the outlook for the homebuilders on this week’s podcast.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

M/I Homes, Inc. (MHO): Free Stock Analysis Report

KB Home (KBH): Free Stock Analysis Report

Toll Brothers Inc. (TOL): Free Stock Analysis Report

PulteGroup, Inc. (PHM): Free Stock Analysis Report

Lennar Corporation (LEN): Free Stock Analysis Report

Original post

Zacks Investment Research
Are The Homebuilder Stocks The Deal Of The Year?
Are The Homebuilder Stocks The Deal Of The Year?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email