Is This Turnaround Worth a Bet?
Yashu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Housing Markets are recovering, and this is something which nobody would doubt. This sector is giving more and more positive signs and has definitely been on fire when it comes to stock returns. In the last few years the housing companies had stumbled badly, and now things have changed for the better. The majority of the homebuilders have posted quite robust Q2 numbers and are also optimistic of the impending growth potential in the housing industry. To take home positive returns, it would be crucial for an investor to analyse the current conditions, explore all prospects and make profitable bets for the future.
Buyers or Sellers: Which Side are You On?
Good news for sellers means bad news for buyers. The present situation with lesser inventory means less discounting, lesser incentives and even a longer wait to move into their dream home. But, this nevertheless isn’t stopping buyers to purchase new homes. Low interest rates and improving economic conditions are propelling new purchases.
Companies to Watch Out For:
One of the clear winners in my eyes of the entire situation would be Pulte Group, Inc. (NYSE: PHM). After witnessing a sales drop of 9.5 percent in 2011, it has seen a turnaround this year posting more than 12 percent growth in revenues. Credit Suisse analysts have recently upgraded PHM to outperform from neutral. In this context it would be interesting to note that the company is presently trading at its 52 week high. The company has clearly out-performed its peers when it comes to stock price appreciation. It has almost doubled itself from where it was at the beginning of this year on back of favorable news from the housing market.
Lennar Corporation (NYSE: LEN) is also betting high on a turnaround. The stock has surged 59 percent to date and looks attractive even at this lofty valuation. In its second quarter earnings report, the company had recorded a rise in new orders for the fifth quarter in a row. The third largest builder in the U.S noted that even after charging high, they have seen a signification jump in orders.
Wait wait wait! There is another builder you should be watching out for. You can’t write off Toll Brothers Inc. (NYSE: TOL) from this segment. This builder caters to the luxury sector and probably has enjoyed the most in this turnaround phase. This builder in cashing this recent pep in demand in the housing sector and has delivered more than double the expectations in the recent quarter. With strong liquidity and increase in backlog of orders, this builder is ready to go in the forthcoming quarters.
Bottom Line:
If you are a buyer this may not be the end of misery for you. Companies are enjoying the pricing power and may wish to fill up their pockets at your expense. With tightening inventory, these builders are surely enjoying the ball in their court. But as an investor it must be good news for you. These companies are off to a promising start this quarter. The housing sector continues to gain momentum. At this point an investor should be cautiously positive on these builders. These stocks should be good long term bets to build your portfolio.
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