NEW YORK (TheStreet) -- Stocks in the homebuilder sector were mostly in positive territory Wednesday, riding an overall market upswing that saw the Dow Jones industrial average surge well over 200 points.
Brookfield Homes (BHS) and Beazer Homes (BZH) may be leading the group in terms of share price gains for the day, rising 10.3% and 4.6%, respectively, but savvy investors should consider Ryland (RYL) and KB Home (KBH).
Ryland and KB Home are the top homebuilder stock picks of Stifel Nicolaus analyst Michael R. Widner. The analyst told TheStreet that these two outpace sector peers on both a price-to-book and normalized earnings basis, and both should work as long term value plays.
Widner conceded the housing market is in for a long and slow recovery period, and that ultimately, a sustainable pace of new-home sales is at least double where we are now."Based on that level of potential demand, if it takes three or four years to get there and we assume normal cycle-average profit margins, these are the stocks that should be worth two to three times what they're trading at today three years from now," he said. Ryland shares gained 2.7% Wednesday afternoon to $16.54, while KB Home shares jumped 4.9% to $10.81. The homebuilder group tends to form bottoms around adjusted book value, Widner said, and that's where Ryland and KB Home have been recently, trading around their 52-week lows. He doesn't think price-to-book is a particularly useful measure for the homebuilding sector, but understands that the market seems to think it is. Based on generally depressed share prices, Widner said investors already priced in the sector's gloomy outlook.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV