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4 Downgrades Hit Home Builder Sector

The daily chart for HGX (172.69) shows rising momentum with the index above its 21-day, 50-day and 200-day simple moving averages at 164.55, 163.48 and 141.50. HGX is up 134.5% since the October 2011 low and is up 67.8% year to date. HGX crossed my monthly pivot at 166.82 this week, and I show a projected monthly risky level at 173.86 in Jan 2013. This week's value level is 159.16.

Chart Courtesy of Thomson/Reuters

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 are projected to move higher by that percentage over the next 12 months.

Value Level: 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 timeframe noted.

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

D.R. Horton (DHI - Get Report) ($20.08 vs. $19.58 on Nov. 28) still has a buy rating even though the stock is 25% overvalued with an elevated 12-month trailing price-to-earnings ratio at 25.4. DHI tested its 50-day SMA at $20.07 on Tuesday with its Sept. 21 high at $22.79. My quarterly value level is $18.11 with monthly risky level at $22.26.

Hovnanian (HOV - Get Report) ($6.05 vs. $5.49 on Nov. 28) has had a double-downgrade to strong sell from hold since Nov. 28, and is projected to decline by 22.6% over the next 12 months. HOV set a new multi-year high at $6.10 on Tuesday. After a gain of 351.5% over the last 12 months and given the downgrade, this stock has become a MOJO play only.

KB Home (KBH - Get Report) ($17.00 vs. $14.61 on Nov. 28) has been downgraded to hold from buy since that Nov 28 post. After a gain of 138.8% over the last 12 months this stock has become a pure momentum play as the stock approaches its multi-year high of $17.30 set on Oct 19.

Lennar Corp (LEN - Get Report) ($39.71 vs. $38.72 on Nov. 28) still has a buy rating, is 60.6% overvalued and up 112.8% over the last 12 months with a P/E of 37.1. My weekly value level is $36.07 with a monthly pivot at $38.58 and annual risky level at $44.87. The stock set a new multi-year high at $39.72 on Tuesday.

Pulte Group (PHM - Get Report) ($18.61 vs. $17.11 on Nov. 28) has been downgraded to buy from strong buy since Nov. 28, is 27.4% overvalued after gaining 223.1% over the last 12 months. The stock has a trailing 12-month P/E at 30.9. My weekly value level is $15.82 with a monthly pivot at $18.11 and annual risky level at $26.56. The stock set a new multi-year high at $18.71 on Tuesday.

Ryland Group (RYL) ($37.39 vs. $33.72 on Nov. 28) still has a buy rating, is 17.8% overvalued after a gain of 162.0% over the last 12 months. The stock has a trailing 12 month P/E of 58.4. My weekly value level is $34.18 with a monthly pivot at $36.70 and annual risky level at $49.02. The stock set a new multi-year high at $37.50 on Tuesday.

Standard & Pacific (SPF) ($7.23 vs. $6.90 on Nov. 28) has been downgraded to hold from buy since Nov 28. The stock is 46.0% overvalued after gaining 151.0% over the last 12 months and has a P/E of 44.3. My weekly value level is $5.65 with a monthly risky level at $7.95. The stock failed at $7.90 three times: Sept. 21, Oct. 17 and Oct. 25.

Toll Brothers (TOL) ($32.51 vs. $32.11 on Nov. 28) still has a buy rating, is 26.9% overvalued after gaining 65.4% over the last 12 months. The stock has a 12-month trailing P/E ratio of 50.7. My annual value level is $29.30 with a monthly risky level at $36.95. TOL is lagging its multi-year high of $37.08 set on Sept. 21.

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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SYM TRADE IT LAST %CHG
DHI $27.59 0.00%
HOV $2.60 0.00%
KBH $16.58 0.00%
LEN $51.20 0.00%
PHM $20.55 0.00%

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DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
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