|Chasing Home Builder Stocks|
|Wednesday, 27 June 2012 08:01|
Is the home builder sector looking overbought or will the run continue? We ask this question because a number of stocks in the space are near or have set multiple 52-week highs of late. Recent data illustrates that home prices and sales are truly on the rise and the new home market in particular has rebounded.
Lennar (NYSE – LEN) just had awesome results destroying EPS expectations and the CEO believes that the “for sale” market has bottomed and is on the rise. Orders have jumped and backlog is up 61%.
While on the surface it looks like the sector has more legs to go, our hesitation is valuation. First, the spread on revenue and EPS estimates is all over the map indicating no one really knows how things will shake out.
Historically, the present valuations of most stocks reflect business and valuation six months from now. If that is the case here, the space may already have the return to growth factored in. After all, the sector is up over 30% year-to-date. If you are a fan, perhaps playing the space by buying Hovnanian (NYSE – HOV - $2.86) isn’t a bad play. They are not expected to earn money but the stock’s market cap is a fraction of its sales. KBH (NYSE – KBH - $8.76) looks like a good play and has a great chart as well but we have valuation concerns as noted above. In any event, tread lightly.
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