Catch the Housing Rebound Before Its Too Late

NEW YORK ( TheStreet -- Editor's note: As part of our partnership with Nightly Business Report, TheStreet's Debra Borchardt will join NBR Monday (check local listings) to talk about the newest names to the homebuilding sector

Savvy investors began buying homebuilder stocks when everything about their earnings smelled. No one was buying new homes, banks weren't lending and there was concern that some of these companies might go under. Contrarians, though, gave it a shot and have been handsomely rewarded. In the last year, Toll Brothers ( TOL) is up 47%, Ryland Homes ( RYL) has gained 87% and KB Homes ( KBH) has advanced 51%, to name just a few homebuilders enjoying improved numbers.

The latest U.S. economic data showed that existing home sales rose in the second half of 2012 lifting the year to its best total since 2009. The only region that registered a sales decline was the West and that was due to inventory constraints, said RDQ Economist John Ryding. The supply of existing home sales in January hit its lowest level since March 2005, he added. The big picture, therefore, is encouraging: home prices have increased 12% over the past year.

So, if investors are now finally comfortable that the upturn in housing prices portends a genuine recovery rather than just a head fake, have they lost the chance by waiting too long? The established homebuilder names may already have made their big moves, so investors need to look for names that institutional fund managers have overlooked.

TRI Pointe Homes ( TPH) is a good example. The Irvine, California-based homebuilder went public Jan. 31 and has gained 5.8%. TRI Pointe mostly builds in California, which was ground zero for toxic mortgage companies like Countrywide Financial and IndyMac. It may seem difficult to believe that Californians are back to buying newly-built homes, but TRI Pointe successfully sold its Sagebluff housing development in Riverside CA and built 100 homes in its first year of business. TRI Pointe has said it plans to start its first development in Colorado in the spring. At present, the company owns 13 communities, 8 of which are actively selling. TRI Pointe wrote in its prospectus, "Growth in sales of new homes have outpaced growth in sales of existing homes over the same period, increasing 23% versus 8% for existing homes."

Additionally, the executives at TRI Pointe have worked together for over 20 years, so these aren't flippers or teachers turned homebuilders. Chairman Barry Sternlicht, who heads Starwood Capital Group is also the CEO of Starwood ( STWD). The company has attracted coverage from as many as three analysts which is far fewer than Toll Brothers with at least 21 analysts covering that company. In other words, TRI Pointe may be relatively unknown among retail investors. Institutional ownership is at 45%. Follow the smart money.

Another new homebuilder stock is Boise Cascade ( BCC), which is already up 30% since going public on Feb. 6. Boise Cascade presents a different way to play homebuilding as the company is the second-largest manufacturer of laminated veneer and engineered wood products used in I-joists for building homes. They're also the second-largest manufacturer of plywood in the U.S. The company wrote in its prospectus, that it was well positioned to "take advantage of the recovery that we believe is underway in the U.S. housing market."

Boise Cascade actually grew market share during the housing downturn and also argues that the industry's prospects are improving. "Housing starts increased substantially in 2012 and, as a result, demand for the products we manufacture and distribute has also increased. U.S. single- and multi-family housing starts were 0.87 million in September 2012 on a seasonally adjusted annual rate basis, an increase of 35% from September 2011." Boise also hasn't captured the attention of research analysts making this another "under the radar" stock.

Taylor Morrison hasn't gone public yet, but it's definitely one to put on your watch list. Taylor Morrison Home Corporation is one of America's top ten homebuilders. The Scottsdale, Arizona-based company had planned to raise $250 million but after TRI Pointe's success in public markets, Taylor Morrison's offering has been increased to $500 million. a 75-year-old company, Taylor Morrison generated $1.3 billion in sales for the last 12 months ending Sept. 30, according to a federal filing. Taylor owns homes in Texas, Florida, and California as well as Phoenix.

Taylor Morrison wrote in its prospectus, "We believe that a strong fundamental U.S. housing recovery is underway on a national basis, driven by consumers who are increasingly optimistic about their economic prospects and supported by several positive economic and demographic factors." Taylor Morrison went on to write that, "the increase in new building permits is consistent with an average of 30% and 48% year-over-year growth in new home orders and backlog reported by the top 10 public homebuilders (ranking based on 2011 revenues reported by Hanley Wood.)"

The company plans to go public on the New York Stock Exchange ( NYX) though the price range has not been made public. The buzz is already building among institutional money managers looking for new names for their homebuilding portfolios. Without analyst coverage, these names tend to stay low on the radar screen, but if you read the prospectus, you'll see strong fundamentals to support the positive stock performance.

--Written by Debra Borchardt in New York.

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