Homebuilders Rebound On Permits and Higher Home Prices

NEW YORK (TheStreet) -- Homebuilding remains an important component of an economic recovery. Before Tuesday's strong rebound the 11 homebuilder stocks I have been tracking were down between 7.3% and 26.6% since May 28. Beazer Homes (BZH) which was upgraded to hold and had a one-month gain with a six-month loss. Ryland Group (RYL) was down for the month.

On Tuesday, ValuEngine upgraded four names to hold from buy and one from strong sell to sell. Homebuilders rebounded on a stronger than expected reading for building permits in September and October and on higher prices that were reported in the S&P/Case-Shiller Home Price indices. Following Tuesday's rally the six month declines were cut to between 4.1% and 23.1%.

Since my last post on Oct. 31, Homebuilder Trading Opportunities Continue the biggest gainer has been Beazer Homes which was upgraded to hold and had a one-month gain of 12.5% with a six-month loss of 5%. Ryland Group as the worst performer since Oct. 30 with a decline of 5.8%.

The S&P/Case Shiller Home Price Indices showed that the 20-City Composite rose by 0.7% in September and was up 13.3% year over year. With the 20-City Composite up 23.6% since the March 2012 lows I would continue to argue that the housing bubble is re-inflating.

This table compares data from May 28 to the data from Nov. 26. All homebuilders are lower in price since May 28 by between 4.1% and 23.1%. Between May 28 and Nov. 26 the table shows that nine of 11 are significantly less overvalued today vs. six months ago with one now undervalued by 11.9%.

Remember those triple-digit 12 month gains? There gone! The best gain over the last 12 months is 40.9% and three now show 6.5% to 12.4% losses over the last 12 months.

The 12 month trailing price-to-earnings ratios are much lower today than six months ago, but keep in mind that historically homebuilder P/E ratios are in single-digit territory.

The homebuilders are in the construction sector which is 22.3% overvalued with the homebuilding industry just 11.5% overvalued. The construction sector is rated underweight with 49.7% of the 157 stocks in the sector rated sell or strong sell.

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Reading the Tables

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 ($20.71) beat EPS estimates by 14 cents earning 40 cents a share on Nov. 7 and the stock traded up to $20.85 on Nov. 18 and was upgraded to hold from sell on Nov. 25. The stock held its 200-day SMA at $17.82 on Nov. 5 after trading to a second half 2013 low at $15.54 on Aug. 7. My monthly value level is $19.69 with a quarterly pivot at $20.44 and the May 20 high at $23.29.

DR Horton ( DHI) ($19.93) missed EPS estimates by a penny earning 40 cents a share on Nov. 12. This homebuilder has been moving sideways and below its 200-day SMA at $21.62 since July 16 setting a second half low at $17.52 on Sept. 5. My weekly and annual value levels are $18.22 and $16.05 with a monthly pivot at $20.21 and semiannual risky levels at $20.83 and $21.19.

Hovnanian ( HOV) ($5.00) has been moving sideways to down below its 200-day SMA at $5.49 since July 24 setting a second half low at $4.77 on Nov. 21. On May 28 the stock had a 12 month gain of 225.4% and today has a loss of 9.1% over the last 12 months. My monthly pivot is $5.00 with quarterly and semiannual risky levels at $5.47 and $5.77. Hovnanian's next earnings release is on Dec. 12 and EPS is expected to be 16 cents a share.

KB Home ( KBH) ($17.81) has been moving sideways and below its 200-day SMA at $19.21 since July 24 setting a second half low at $15.57 on Aug. 15. This stock was upgraded to hold from sell on Nov. 25. My weekly value level is $16.09 with a monthly risky level at $19.50. KB Home's next earnings release is on Dec. 19 and EPS is expected to be 45 cents a share.

Lennar ( LEN) ($36.05) has been moving sideways and below its 200-day SMA at $37.09 since June 19 setting a second half low at $30.90 on Aug. 15. This stock was upgraded to hold from sell on Nov. 25. My monthly value level is $34.80 with a semiannual pivot at $35.45 and quarterly risky level at $42.52.

MDC Holdings ( MDC) ($30.41) has been below its 200-day SMA at $33.27 since June 4 and set its second half low at $27.00 on Sept. 5. My semiannual value level is $27.72 with a semiannual pivot at $28.44 and an annual risky level at $37.07.

M/I Homes ( MHO) ($22.25) has been moving sideways below its 200-day SMA at $22.38 July 22 setting a second half low at $17.82 on Oct. 9. This stock was upgraded to sell from strong sell on Nov. 25. My weekly and semiannual value levels are $20.13 and $19.20 with a monthly pivot at $21.19 and semiannual risky level at $22.88.

PulteGroup ( PHM) ($18.95) moved above its 200-day SMA at $18.72 on Tuesday after being below it since July 24 and setting a second half low at $14.23 on Aug. 15. My monthly value level is $17.62 with a weekly pivot at $18.07 with a quarterly risky level at $25.32.

Ryland Group ($40.02) tested its 200-day SMA at $40.25 on Tuesday and has been trading back and forth around is 200-day SMA since June 21 and set a second half low at $33.04 on Aug. 15. This stock was upgraded to hold from sell on Nov. 25. My semiannual value level is $33.71 with a weekly pivot at $38.01 and monthly risky level at $46.12.

Standard & Pacific ( SPF) ($8.16) missed EPS estimates by 2 cents earning 10 cents a share on Oct. 31. The stock set its second half low at $7.03 on Aug. 29 and last tested its 200-day SMA at $8.24 on Oct. 30 and again on Tuesday. My semiannual value level is $7.58 with a monthly risky level at $8.30.

Toll Brothers ( TOL) ($34.88) has been trading back and forth around its 200-day SMA at $33.25 since April 3 and set a 2013 low at $29.64 on Oct. 9. This stock had a hold rating on Oct. 30 and now has a sell rating. My semiannual and annual value levels are $32.51 and $31.95 with a weekly pivot at $32.96 and quarterly risky level at $45.89.

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 is the chief market strategist at AlphaPlus Analytics in addition to ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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