Skip to content
elpopulocadiz
  • downtown housing
  • highest apartment
  • cheapest housing
  • buildings land
  • Property land
  • News custer housing
  • About Us
    • Advertise Here
    • Contact Us
    • Privacy Policy
    • Sitemap

Why the Home Builders Are the Cheapest Stocks Around

  • Home
  • Why the Home Builders Are the Cheapest Stocks Around
By: Wilma Lugo Posted on March 31, 2022

The housing market is still robust, but home-building stocks have been rocked this year as investors worry that surging mortgage rates will dampen activity later in 2022 and in 2023.

The result is that the industry now has the lowest price-to-earnings ratio in the stock market at around four times projected 2022 earnings.

With the sector so inexpensive, the risk-reward equation looks favorable given that many stocks are trading at, or near, book value.

 Thirty-year mortgage rates have risen to about 4.5%, from 3% in late 2021. Should they start to slide back, the stocks could rally. And the stocks could gain even if rates hold at current levels — should favorable industry trends continue.

Related Posts:

  • Firms to watch with housing shortage set to benefit homebuilder stocks

Home-building stocks are the second-worst performing group in the S&P 500 index this year—only home furnishing stocks have done worse. The


iShares U.S. Home Construction

exchange-traded fund (ticker: ITB) is off 25%, to around $62. Industry leader


D.R. Horton

(DHI) is off 28%, to $78.

Barron’s wrote favorably on the group in late 2021 in what appears today to be a badly timed article. The stocks are off sharply since then.

Housing bull Stephen Kim, an analyst at Evercore ISI, says the stocks are cheap and that their land values should help put a floor under them. Demographics also look favorable as millennials move out of city apartments in search of more space in the suburbs.

“But while industry fundamentals are incredibly strong, housing bears are quick to add the rejoinder ‘so far!’ and turn a blind eye to all the positive data,” he noted in a report a month ago.

Book value has often underpinned the stocks in the past, and book value could now be understated industrywide because of older, lower-priced land carried on company balance sheets. Kim wrote that the stocks “are trading well below their implied liquidation value.”

Homebuilder / Ticker Recent Price YTD Change 2022E P/E Dividend Yield
KB Home / KBH $33.83 -24.4% 3.3 1.8%
Taylor Morrison Home / TMHC 29.12 -16.7 3.5 zero
Tri Pointe Homes / TPH 20.84 -25.3 4.0 zero
PulteGroup / PHM 43.67 -23.6 4.2 1.4%
Toll Brothers / TOL 48.66 -32.8 4.6 1.6
D.R. Horton / DHI 78.27 -27.8 4.9 1.1
Lennar / LEN 82.51 -29.0 5.1 1.8

E=estimate

Source: FactSet


Toll Brothers

(TOL),


KB Home

(KBH),


Tri Pointe Homes

(TPH), and


Taylor Morrison Home

(TMHC) trade near book value, while


Lennar

(LEN), one of the two industry leaders, now trades for 1.2 times book.

D.R. Horton, the No. 1 home builder in the country, trades for 1.8 times book and


PulteGroup

(PHM) at around 1.5 times, according to FactSet.

The industry is probably in its best shape ever, with strong balance sheets and increasing capital returns to shareholders, mostly stock repurchases. Lennar bought back more than 2% of its stock in the latest quarter. Dividend yields generally are under 2%.

So what’s the problem?

“Investors are understandably skittish given the combination of higher rates and elevated prices makes homes less affordable,” J.P. Morgan analyst Michael Rehaut wrote in a recent note. “While the current fundamental backdrop remains healthy, at the same time, we believe investor concerns regarding rising interest rates and the sustainability of earnings are likely to persist over the near to medium term.”

The J.P. Morgan analyst is “less constructive” and more selective on the stocks, favoring Horton, Lennar, and Pulte. Home builders are contending with shortages of materials like garage doors.

Lennar stock could benefit from the company’s plans to separate non-core businesses including multifamily rental operations later this year. Kim has written that the spinoff value could be over $20 a share.

Lennar has two classes of stock. Its less-liquid, supervoting class B shares trade at a 15% discount to the more liquid A shares. The class B stock ended at $69.50 Monday, against $82.51 for the A stock.  

The B stock, largely held by Lennar Chairman Stuart Miller, could ultimately be merged into the A shares, benefiting B share holders. Barron’s has written that the B shares are a good alternative to the A stock for individual investors. The B shares trade below book value and for just four times projected earnings in Lennar’s fiscal year ending in November.

Toll shares, which ended Monday around $49, trade for less than 1.1 times the company’s book value of nearly $45 in its quarter ending in January. Toll is differentiated from its peers thanks to its luxury focus. The affluent buyers of its high-end homes — whose average price is close to $1 million — tend to be selling homes that have appreciated and are thus less sensitive to changes in mortgage rates.

If Toll CEO Doug Yearley is accurately describing the housing market as he did in the company’s earnings press release in February, the industry could be on a multiyear run.

 “This market is being propelled by strong demographics, the substantial imbalance between the tight supply of homes and continued pent-up demand, growing equity in existing homes, migration trends, and the greater appreciation for home,” he said then. “We believe these long-term tailwinds will continue to support demand for new homes well into the future. With our significant and well-located land holdings and our unique niche in the luxury market, we are well positioned for continued growth.”

Write to Andrew Bary at [email protected]

Categories: cheapest housing Tags: A Real Estate Agent, A Real Estate Agent Is Able To, A Real Estate Agent Salary, A Real Estate Attorney, A Real Estate Broker, A Real Estate Investment Trust, A Real Estate Lawyer, A Real Estate Tax Lien Is, B Real Estate Bendigo, B Real Estate Broker, B Real Estate Central Coast, B Real Estate Dubai, B Real Estate Logo, B Real Estate Nz, B Real Estate School, B Real Estate Wynnum, B.C. Real Estate Market Forecast 2021, C Real Estate Logo, C Real Estate Mallorca, C&R Real Estate, Real Estate Agencies, Real Estate Agent, Real Estate Agent Salary, Real Estate Agent Salary Nashville, Real Estate Agents Near Me, Real Estate Appraiser, Real Estate Attorney, Real Estate Attorney Memphis, Real Estate Books, Real Estate Broker, Real Estate Broker Salary, Real Estate Broker Vs Agent, Real Estate Brokerage, Real Estate Brownsville Tn, Real Estate Bubble, Real Estate Business, Real Estate Classes, Real Estate Classes Memphis, Real Estate Classes Memphis Tn, Real Estate Classes Online, Real Estate Companies, Real Estate Companies Memphis, Real Estate Companies Near Me, Real Estate Contract, Real Estate Express, Real Estate License, Real Estate License Tn, Real Estate School Bartlett Tn, Real Estate School Memphis

Post navigation

‘We’re a republic not a democracy’: Here’s what’s so undemocratic about this GOP talking point | John L. Micek
Pushpa Review | Pushpa: The Rise

Recent Posts

  • Our Redeemer, Helena-area nonprofits request $2.4M subsidy for affordable housing project | Local
  • Garden Makeover: Spruce up a Yard with Butterfly and Bird-Friendly Plants
  • Cities Where Apartment Rents Have Dropped the Most
  • Keep Seattle’s progress toward affordable housing to end homelessness transparent
  • Kigali city launches fresh operation against undeveloped land | The New Times

Archives

  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • January 2022
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • November 2018
  • October 2018
  • December 2016

Categories

  • buildings land
  • cheapest housing
  • downtown housing
  • health fitness
  • highest apartment
  • Home improvement
  • News custer housing
  • Property land

Visit Now

computer backgrounds

BL

TL

Intellifluence Trusted Blogger
elpopulocadiz.com All Rights Reserved | Magpaper by Theme Palace
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT