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TheStreet Open House

This Housing Recovery Is Real

In addition to this, money is still cheaper than the dirt on which homes are built. With 30-year mortgages hovering around 3.5% and the banks starting to loosen up a bit, there are buyers once again. I was also told by my mortgage expert, Craig Brock, that his company was holding a big job fair in order to get enough loan processors right now!

Now let's take a look at the performance of Lennar's stock over the years:

Data from Best Stocks Now app

As you can see, the stock has performed in line with the S&P 500 over the last 10 years. Over the last five years, it has surprisingly beaten the market quite handily. Over the last three years, the stock has sizzled at a rate of 38.9% per year. The stock has exploded over the last 12 months for a 168.3% gain.

This huge gain in the stock begs the question: "Have the homebuilders gotten expensive, from a valuation point of view?"

Let's take a look at the current valuation numbers on Lennar:

Data from Best Stocks Now app

Lennar's stock is currently trading at 23 times forward earnings. The consensus analysts' forward growth rate is 6% per year. This makes for a very high PEG ratio.

It is obvious that investors are looking down the road for those earnings at Lennar to really start to ramp up. For new investors, I believe the stock is a bit ahead of itself from a valuation perspective. However, I don't believe current investors should unload their shares.

I like to buy stocks that combine performance with value. Lennar has the performance (momentum) right now, but it is hard to justify a new buy in the stock at the current valuation.

Let's take a look at another stock, tied to this sector, that does combine performance and valuation right now.

We will go to Bloomington, Minn. and pay a visit to Toro (TTC). Most of you are familiar with its products. I have had my share of experience with accidentally cutting a PVC line under pressure and getting my face water-blasted. It is so embarrassing!

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