Beazer, Lennar, Pulte, Other Homebuilders Fall Off Multi-Year Highs

NEW YORK ( TheStreet) -- Homebuilder stocks were the 2013 leaders until peaking in mid-May. My benchmark for the housing market is the PHLX Housing Sector Index which peaked at 210.01 on May 20, up 22.6% on the year, leading all industry groups I have been tracking. Thursday the housing index set a 2013 low at 164.03, down 4.2% on the year. The index ended Friday virtually flat on the year.

The attempt at building new foundations began at 10 a.m. Thursday with the release of the National Association of Home Builders Housing Market Index which showed a rise of three points in August to a reading of 59, well above the neutral reading of 50, the highest in nearly eight years. Officials from the NAHB say that builders are seeing increased foot traffic and with firming prices potential buyers are anxious to find the right deal on a new single-family home.

Even with this elevated optimism the NAHB also has concerns. The inventory of both new and existing homes for sale is limited, and increasing production of new single-family homes is being slowed by tight credit for both builders and buyers, and by the limited supply of desirable lots and construction labor.

The release of Housing Starts data for July on Friday morning does not jive with builder confidence. Starts rose by a less than expected 5.9% with an annual rate of 896,000 units, while single-family starts declined 2.2% to a seasonally adjusted annual rate of 591,000 units in July. The chart below shows the growing gap between homebuilder confidence and single-family housing starts, which appear to be stalling at the 600,000 threshold.

The last time I profiled the homebuilders was on July 17 in, Fear and Greed Return to the Housing Market. At that time eight of the homebuilders were rated hold and three were rated sell. Today 10 are rated hold and one is rated buy according to ValuEngine. In July five were overvalued by more than 20%, and now there are just three. In July seven had gains of more than 25% over the last 12 months and today there are just three.

On July 17 eight homebuilders were above their 200-day simple moving averages reflecting the risk of the reversion to the mean. At Friday's closes 10 are below their 200-day SMA after all 11 returned to their mean since July 17. Now these homebuilders are attempting to build new foundations.

Reading the Table

OV/UN Valued: 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: 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: Price at which to enter a GTC limit order to sell on strength.

Beazer Homes ( BZH) ($17.38 vs. $18.44 on July 15) set its multi-year at $23.29 on May 20 and returned to its 200-day SMA on a reversion to the mean at $17.20 on June 14. My semiannual value level is $14.82 with a weekly pivot at $17.17, the 200-day SMA at $17.15 and monthly risky level at $19.71.

DR Horton ( DHI) ($19.00 vs. $21.72 on July 15) set its multi-year at $27.74 on May 15 and returned to its 200-day SMA on a reversion to the mean at $22.27 on June 20. My annual value level is $16.05 with a semiannual pivot at $21.19, the 200-day SMA at $22.18 and monthly risky level at $23.78.

Hovnanian ( HOV) ($5.28 vs. $5.74 on July 15) set its multi-year at $7.43 as 2013 began and returned to its 200-day SMA on a reversion to the mean at $5.37 on June 24. The 2013 low is $4.65 set on April 18 with a quarterly pivot at $5.47, the 200-day SMA at $5.70 and monthly risky level at $6.39.

KB Home ( KBH) ($17.01 vs. $18.97 on July 15) set its multi-year at $25.14 on May 15 and returned to its 200-day SMA on a reversion to the mean at $18.49 on July 5. My weekly value level is $16.10 with a quarterly pivot at $17.43, the 200-day SMA at $18.89 and annual risky level at $22.95.

Lennar ( LEN) ($33.88 vs. $35.55 on July 15) set its multi-year at $44.40 on May 20 and returned to its 200-day SMA on a reversion to the mean at $38.69 on June 3. The 2013 low is $30.90 set on August 15 with a semiannual pivot at $35.45, the 200-day SMA at $38.75 and monthly risky level at $38.64.

MDC Holdings ( MDC) ($30.25 vs. $32.93 on July 15) set its multi-year at $42.41 on Jan. 29 and returned to its 200-day SMA on a reversion to the mean at $36.04 on April 1. My semiannual value level is $28.44 with a weekly pivot at $30.88, the 200-day SMA at $36.02 and quarterly risky level at $35.35.

M/I Homes ( MHO) ($20.70 vs. $23.85 on July 15) set its multi-year at $29.07 on Jan. 9 and returned to its 200-day SMA on a reversion to the mean at $21.73 on April 5. My semiannual value level is $19.20 with a semiannual pivot at $22.88, the 200-day SMA at $23.91 and quarterly risky level at $23.63.

PulteGroup ( PHM) ($16.28 vs. $19.54 on July 15) set its multi-year at $24.47 on May 15 and returned to its 200-day SMA on a reversion to the mean at $18.87 on June 20. My annual value level is $14.00 with a semiannual pivot at $14.85, the 200-day SMA at $19.24 and quarterly risky level at $19.37. Pulte is the biggest loser since July 15 with a decline of 20%, but this stock is the only buy rated name among the 11.

Pulte was added to my subscription product, ValuTrader Model Portfolio at the open at $14.66 on Aug. 15 as that open was below my semiannual value level, now a pivot at $14.85. Subscribers use GTC limit orders to buy weakness to a value level and if an open is below that price the execution is at the opening price. At Friday's close this position is up 11.1%.

Ryland Group ( RYL) ($36.31 vs. $40.20 on July 15) set its multi-year at $50.42 on May 20 and returned to its 200-day SMA on a reversion to the mean at $37.66 on June 21. My semiannual value level is $33.71 with a weekly pivot at $39.49, the 200-day SMA at $39.27 and quarterly risky level at $41.16.

Standard & Pacific ( SPF) ($7.65 vs. $8.56 on July 15) set its multi-year at $9.97 on May 14 and returned to its 200-day SMA on a reversion to the mean at $7.91 on June 24. The 2013 low is $7.05 set on August 15 with a semiannual pivot at $8.73, the 200-day SMA at $8.09 and quarterly risky level at $9.03.

Toll Brothers ( TOL) ($31.76 vs. $33.84 on July 15) set its multi-year at $39.25 on May 22 and returned to its 200-day SMA on a reversion to the mean at $33.91 on May 30. My semiannual value level is $24.57 with an annual pivot at $31.95, the 200-day SMA at $32.82 and monthly risky level at $35.95.

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.