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
TheStreet Open House

Buying Homebuilder Stocks at 'Sell' Levels

Stocks in this article: BZHPHMKBHHOVMHO

BOSTON ( The Street Ratings) -- In a story last week, I said it was a good time to evaluate homebuilder stocks because of depressed values and negative sentiment -- two key ingredients for a rebound.

Here's a closer look at specific stocks in the industry.

Homebuilders have been decimated over the past month (see second chart, below), with the S&P Homebuilders ETF (XHB) losing a quarter of its value. Worries over a double-dip recession, high unemployment, poor housing sales and scant work on new homes have led investors and economists to conclude that there's no recovery in the offing.

I offered that, with such dim hopes, a contrarian stance could lead to big-time profits.

Take a look at the first chart below, which shows the price-to-book ratio. We now stand at 1.06 times, which is 25% below the average of 1.4 times from 2009 to 2011, and 50% below the average of 2 times from 2002 to 2005.

I acknowledge that we are unlikely to see an immediate recovery in housing. But based on valuations, and what I sense to be more stability with many companies in the industry, it could be well worth the risk for a longer-term investor.

As to the risks, the biggest concern is the amount of shadow inventory that could potentially flood the market. I've heard 20 months of supply is waiting in the wings. But there is also discussions surrounding turning foreclosure inventory into rental units, which might help relieve pricing pressure.

I've provided details of homebuilders' geographic footprint inventory, financial position, insider activity, and the level of risk and reward. This week I'm looking at five names that have been hit the hardest over the past month: Beazer (BZH), Pulte (PHM), M/I Homes (MHO), KB Home (KBH) and Hovnanian (HOV). I will follow up with another piece covering the rest of the group.

1 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,399.67 +19.26 0.12%
S&P 500 1,904.01 +17.25 0.91%
NASDAQ 4,316.0740 +57.6360 1.35%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs