Homebuilder M&A 2010: A Big Land Grab?

NEW YORK (TheStreet) -- Profits are expected to remain elusive for most of the major public homebuilders in 2010 -- although market-share gains are expected for many in the homebuilding sector.

But does a big land grab in 2010, and possibly even some major M&A transactions similar to the Pulte Homes(PHM)-Centex deal from last April, make the homebuilders a good place to wager investor dollars in 2010?

There are two ways to answer this question. One line of reasoning argues that since competition will be intense for land purchases with companies like D.R. Horton(DHI) and Toll Brothers(TOL) sitting on big cash balances, investors need to buy the stocks at the bottoms they have reached before the opportunistic land grabs push the homebuilders higher again.

"I'd be buying now," said James Wilson, analyst with JMP Securities. "If you wait until you see it on the tape, it's too late," Wilson said. "There are lots of public builders with lots of cash, and a reasonably competitive bidding environment," he added.

On the other hand, the relative importance of market share gains versus a return to profitability by the homebuilders also leads to a major reason why investors may not want to rush into the stocks betting on profitability: A homebuilder like M.D.C. Holdings(MDC), for example, may actually benefit from the downturn lasting a little longer, so they can buy distressed land at higher margins, explained an analyst who could not be quoted on potential M&A activity among the homebuilders.

"I don't think M.D.C. cares if there is a downturn in 2010. It's an opportunistic buying atmosphere, and there are plenty of builders with a big land supply that they want to get rid of," the analyst said.