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Welcome to Episode #298 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With stocks still in the red in 2022, it shouldn’t be surprising that there are plenty of values.
The homebuilders have been cheap stocks all year even as their shares have sunk. That’s because earnings have remained elevated this year as the builders deliver their backlogs, which were bought earlier when prices were at record highs and incentives were non-existent.
However, rapidly rising mortgage rates have led to an increase in cancellations and slower new orders, traffic in the sales centers and on the website.
It looks like the housing market will slow further into 2023.
Are the homebuilders true values or are they traps?
Definition of a Value Stock Versus a Trap
Remember, a true value stock and a trap can look very similar. They are both cheap, on a P/E basis. But a true value usually has rising earnings estimates year over year.
A trap, on the other hand, can appear to be cheap based on the current earnings but if you look closely, earnings are probably likely to decline next year.
Beware.
There are a LOT of traps out there right now as companies lower earnings guidance.
Lennar is one of the large national homebuilders with a market cap of $20.9 billion. Lennar is reporting its fiscal third quarter earnings on Sep 21, 2022 with its conference call on Sep 22, 2022.
We’re about to find out what is going on in the business this fall. Are sales still slowing? Have they stabilized? Are cancellations rising?
Shares of Lennar are down 36% year-to-date.
Lennar trades with a forward P/E of just 4.4 and pays a dividend yielding 2%.
D.R. Horton is a national homebuilder with a market cap of $23 billion.
Shares of D.R. Horton are down 36.5% year-to-date but over the last 5 years, shares are up 123% which is easily beating the S&P 500 during that time, which is up just 78.6%.
Shares are dirt cheap, with a forward P/E of 4.1.
It’s a Zacks Rank #3 (Hold).
Should D.R. Horton be on your shortlist?
5. M.D.C. Holdings
M.D.C. Holdings is one of the smaller national homebuilders with a market cap of $2 billion.
Shares of M.D.C. Holdings have plunged 47% year-to-date. They now trade at just 3.2x forward earnings.
It has been one of the highest dividend payers in the industry for over a year. That dividend is now yielding 6.7%.
Can M.D.C. Holdings still pay that juicy dividend as the housing market slows further in 2023?
What Else Should You Know About the Homebuilders in 2022?
Tune into this week’s podcast to find out.
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Homebuilder Stocks: Values or Traps?
Welcome to Episode #298 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With stocks still in the red in 2022, it shouldn’t be surprising that there are plenty of values.
The homebuilders have been cheap stocks all year even as their shares have sunk. That’s because earnings have remained elevated this year as the builders deliver their backlogs, which were bought earlier when prices were at record highs and incentives were non-existent.
However, rapidly rising mortgage rates have led to an increase in cancellations and slower new orders, traffic in the sales centers and on the website.
It looks like the housing market will slow further into 2023.
Are the homebuilders true values or are they traps?
Definition of a Value Stock Versus a Trap
Remember, a true value stock and a trap can look very similar. They are both cheap, on a P/E basis. But a true value usually has rising earnings estimates year over year.
A trap, on the other hand, can appear to be cheap based on the current earnings but if you look closely, earnings are probably likely to decline next year.
Beware.
There are a LOT of traps out there right now as companies lower earnings guidance.
5 Homebuilder Stocks: Values or Traps?
1. Toll Brothers, Inc. (TOL - Free Report)
Toll Brothers is a national luxury homebuilder. 20% of its customers pay all cash. Who cares what mortgage rates are?
Shares of Toll Brothers have fallen 40% year-to-date. They are now dirt cheap, with a forward PE of just 4.6.
Toll Brothers has fallen to a Zacks Rank #4 (Sell) as earnings estimates have been cut.
Is Toll Brothers too cheap to ignore?
2. Lennar Corp. (LEN - Free Report)
Lennar is one of the large national homebuilders with a market cap of $20.9 billion. Lennar is reporting its fiscal third quarter earnings on Sep 21, 2022 with its conference call on Sep 22, 2022.
We’re about to find out what is going on in the business this fall. Are sales still slowing? Have they stabilized? Are cancellations rising?
Shares of Lennar are down 36% year-to-date.
Lennar trades with a forward P/E of just 4.4 and pays a dividend yielding 2%.
Is the selling overdone on Lennar?
3. PulteGroup (PHM - Free Report)
PulteGroup is one of the large national homebuilders with a market cap of $9 billion.
Shares of PulteGroup have fallen like the other homebuilders. They’re down 31.6% year-to-date.
They’re cheap, with a forward P/E of 3.5.
Earnings are still looking good for PulteGroup in 2022 as they are expected to be up 54% year-over-year. But 2023 is the real question.
Is PulteGroup a value or a trap?
4. D.R. Horton, Inc. (DHI - Free Report)
D.R. Horton is a national homebuilder with a market cap of $23 billion.
Shares of D.R. Horton are down 36.5% year-to-date but over the last 5 years, shares are up 123% which is easily beating the S&P 500 during that time, which is up just 78.6%.
Shares are dirt cheap, with a forward P/E of 4.1.
It’s a Zacks Rank #3 (Hold).
Should D.R. Horton be on your shortlist?
5. M.D.C. Holdings
M.D.C. Holdings is one of the smaller national homebuilders with a market cap of $2 billion.
Shares of M.D.C. Holdings have plunged 47% year-to-date. They now trade at just 3.2x forward earnings.
It has been one of the highest dividend payers in the industry for over a year. That dividend is now yielding 6.7%.
Can M.D.C. Holdings still pay that juicy dividend as the housing market slows further in 2023?
What Else Should You Know About the Homebuilders in 2022?
Tune into this week’s podcast to find out.