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Toll, Lennar: 2 Good Ways to Play the Housing Recovery

As the chart below illustrates colorfully, this is a big improvement in TOL's earnings. The Journal article pointed out that the latest quarter included a net tax benefit of almost $351 million. Yet as the chart points out quarterly revenues have been rising sharply, up 48% to nearly $633 million.

TOL Chart TOL data by YCharts

As Bloomberg reported on Tuesday:
Confidence among U.S. homebuilders climbed in December for the eighth straight month, reaching its highest level in more than six years and adding to signs that real estate is aiding the economic expansion.

Toll Brothers stock has had a good run since its Nov. 15th intraday low of $28.50. So investors may be well-served to wait for a correction or some weakness before investing. But don't wait too long or for too big of a price pullback.

As Jim Cramer and Stephanie Link wrote to their Action Alerts Plus subscribers last week, "We like its [TOL] dominance, backlog of homes, pricing improvement and relative better balance sheet compared with its peers."

TOL's average price of homes delivered rose to $582,000 compared to $576,000 in the third quarter and $565,000 in the year-ago fourth quarter.

The company estimates that in the fiscal year ahead it will deliver between 3,600 and 4,400 new homes priced at an average of around $612,500. More signs of progress in the housing sector, the drop in new single-family housing starts in November notwithstanding.

One of the home-building stocks that reacted to Wednesday's report on November's new home housing starts was Lennar (LEN - Get Report) the Miami, Fla.-based company. LEN's homebuilding operations include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land. It's well-suited to benefit from the housing recovery.

The company also provides mortgage financing, title insurance and closing services for the buyers of homes. In addition, it invests in distressed real estate assets, as well as engages in sourcing, underwriting, pricing, and monetizing real estate and real estate related assets and providing similar services to others in markets across the country.

A recent report in The Wall Street Journal announced that LEN has secured a $1.7 billion loan from China Development Bank, a government-controlled financial institution. The loan is for two very large housing projects that LEN will undertake in the San Francisco, Calif. area.
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