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Homebuilders' Valuations Are Extremely Speculative

The above table shows data from www.ValuEngine.com covering eleven stocks in the BKX.



Reading the Table

OV / UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a strong sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.

Beazer Homes (BZH) ($3.50): Has a sell rating according to ValuEngine, without a calculated P/E ratio. BZH is above its 200-day SMA at $2.96. Investors should avoid this homebuilder and traders should employ a "buy and trade" strategy between the value level and risky level.

D R Horton (DHI) ($20.90): Has a buy rating according to ValuEngine, an elevated P/E ratio and is above its 200-day SMA at $16.24. Book profits and employ a "buy and trade" strategy between the value level and risky level.

Hovnanian (HOV) ($3.43): Has a sell rating according to ValuEngine, without a calculated P/E ratio. HOV is above its 200-day SMA at $2.44. Investors should avoid this homebuilder and traders should employ a "buy and trade" strategy between the value level and risky level.

KB Home (KBH) ($13.90): Has a hold rating according to ValuEngine, without a calculated P/E ratio. KBH is above its 200-day SMA at $9.56. Investors should avoid this homebuilder and traders should employ a "buy and trade" strategy between the value level and risky level.

Lennar Corp (LEN) ($34.64): Has a buy rating according to ValuEngine, an extremely elevated P/E ratio and is above its 200-day SMA at $26.93. Book profits then employ a "buy and trade" strategy between the value level and risky level.

Pulte Group (PHM) ($15.30): Has a Buy rating according to ValuEngine, has an extremely elevated P/E ratio and is above its 200-day SMA at $9.82. Book profits then employ a "buy and trade" strategy between the value level and risky level. I show an annual risky level at $26.56.

Ryland Group (RYL) ($30.01): Has a buy rating according to ValuEngine, has a ludicrous reasonable P/E ratio and is above its 200-day SMA at $21.78. Book profits then employ a "buy and trade" strategy between the value level and risky level.

Standard & Pacific (SPF) ($6.80): Has a buy rating according to ValuEngine, has an extremely elevated P/E ratio and is above its 200-day SMA at $5.10. Book profits then employ a "buy and trade" strategy between the value level and risky level.

Toll Brothers (TOL) ($34.16): Has a buy rating according to ValuEngine, has a Ludicrous P/E ratio and is above its 200-day SMA at $26.33. Book profits then employ a "buy and trade" strategy between the value level and risky level.

The six buy-rated homebuilders are overvalued with Lennar the most overvalued by 62.0%. The three hold and sell rated stocks are undervalued with Beazer the most undervalued by 62.4%. All nine homebuilders had unbelievably strong stock performances over the past twelve months with tremendous triple digit gains led by Pulte with a gain of 272.3%.

The projected performances for the next 12 months range from a loss of 7.7% for Beazer to a 9.4% gain for Toll Brothers. Given these potential single digit losses and gains investors should book profits and avoid the group. Traders keep on trading but beware of the downside risk.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.
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