This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Homebuilders Spring Forward

With the housing market slowing, why bother investing in homebuilding stocks if the group's best days are behind them? Well, the sector is cheap, the bulls say, and even if fundamentals cool down, earnings won't drop off a cliff.

"Our view is that going forward, we're going to see a slowdown in activity, but not enough to derail anything," says Sam Lieber, portfolio manager of the Alpine US Real Estate Equity fund (EUEYX), which has about 50% of its holdings in homebuilders.

Builders' 2006 results are largely in the bag, because the bulk of revenue will come from the companies' backlog of homes already sold but not yet closed upon. The real issue keeping investors nervous relates to the scenario for 2007, and orders in the all-important spring selling season will provide a crucial look at homebuilders' prospects.

Recent order numbers from the group have been mixed. Large builders like D.R. Horton (DHI - Get Report) and Pulte Homes (PHM - Get Report) posted net order growth of 16% and 10%, respectively, for the fourth quarter. However, smaller builders focused on fewer geographic markets have reported disappointments, such as Standard Pacific's (SPF - Get Report) 13% year-to-date order decline and MDC Holdings' (MDC - Get Report) 10% fourth-quarter order fall.

"I think the larger builders are showing the benefits of their diversification," says Jack Lake, an analyst for Victory Capital Management, which owns Pulte and Lennar (LEN - Get Report).

Toll Brothers (TOL - Get Report), which doubled earnings in 2005, has been the recent black sheep of the large builders, as it reported a 29% drop in fiscal first-quarter new orders for its luxury homes. Analysts' average estimate now calls for Toll to see earnings per share drop 4.6% in 2007 from 2006.

It takes roughly seven to nine months for orders to convert into revenue, which means the order numbers that builders report in the coming months will provide more transparency for late 2006 and early 2007.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
CTX $25.90 0.43%
DHI $25.62 -0.66%
MDC $27.13 0.33%
LEN $46.38 -0.94%
PHM $19.49 -0.66%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs