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Time to Claim the Prize? Home Builder Stocks

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The Home Builder Industry – according to Zacks Industry Ranking – was a successful niche to go long this summer.

Out on the horizon, though, much remains out of focus. Does this short-term trader play keep outperforming this fall? Or do profit-taking pirates secure their prize?

Across spring and summer, “tit-for-tat” tariff escalation was how share traders placed very lucrative bets. Seas were stormy. A self-created U.S. trade war with China kept global business uncertainty high. Safe haven fixed income ports got over-full.

This fall, a set of profit flags unfurl – deep into a share price momentum race.

Is the run over? Is profit-taking on the way? Or is another leg higher yet to come?

To recap, seven weeks ago – around early July – the latest Home Builder share price momentum race gained speed via a fundamental lowering of home financing costs.

  • A rapid decline in risk-free long-term U.S. Treasury interest rates took down the 30-year fixed mortgage rate
  • I see this large 19-company strong industry made it to #19 out of 256 Zacks industries in late August 2019
  • That’s the Top 7%

Zacks serial heat map showed an earnings estimate tailwind enduring 7 straight weeks.

Home Builder share returns piled up.

  • In 2019 (YTD), this mid cap share complex racked up a +34% share gain
  • Meanwhile, the broad large cap S&P 500 index rose half as fast at +15%
  • However, this is solely a recent share price momentum move
  • This boom-or-bust industry underperformed the S&P 500 index over the last 3 and 5 years

The latest Home Builder Share Price 1-month, 3-month, YTD, and 1-year outperformance is shown in the table below. Ditto the early underperformance.



Want historic data that most attracts my economist mind? Long-term U.S. Treasury bond rates trade at lows seen in the “earnings recession” period of 2016.

My informed guess atop the Crow’s Nest?

Underlying home finance rates move sideways this fall. There isn’t much home finance upside left – for those late to the action.

Yet, aggressive share-trading bulls can bet on more trade war escalation. They could be right again. The trend is your friend.

This fall, I see both active buyers and sellers entering trades, inside this speculative share niche. There will be plenty of volume.

Looking down from above, I would fly over the industry fleet – and each individual risky cache of shares -- a “dangerous cargo” flag.

Home Builders is an industry packed with mid-cap names. Here are three of the best, according to the latest Zacks Ranks.

Three Zacks #1 Rank (STRONG BUY) Home Builder Stocks—

(1) KB Home (KBH - Free Report) ): This is a $2.5B market cap stock with a $28 share price. The stock carries a Zacks Value score of A. The PEG ratio is 1.2.The beta is 1.4.

KB Home constructs and sells a variety of new homes designed primarily for first-time, move-up and active adult homebuyers, including

  • attached and detached single-family residential homes
  • townhomes and condominiums

They offer homes in development communities, at urban in-fill locations and as part of mixed-use projects. Their homebuilding operations represent most of their business.

Their financial services operations offer certain insurance products to their homebuyers and title services in certain markets.

(2) M.D.C. Holdings (MDC - Free Report) ): This is a $2.3B market cap stock with a $37 share price. The stock carries a Zacks Value score of C. The PEG ratio is 1.25.The beta is 1.1.

M.D.C. Holdings, Inc. engages in homebuilding and financial service businesses in the United States.

It is engaged in the construction, sale and related financing of residential housing and the acquisition and development of land for use in the Denver, Phoenix, Maryland, Virginia, the mid-Atlantic region, Las Vegas, Dallas and California metropolitan areas.

MDC's homebuilding subsidiaries, which operate under the name Richmond American Homes, have built and financed the American Dream.

The company's subsidiaries also provide mortgage financing, insurance and title services.

(3) Meritage Homes Corp. (MTH - Free Report) ): This is a $2.45B market cap stock with a $65 share price. The stock carries a Zacks Value score of B and a Zacks Growth score of B. The PEG ratio is 1.5.The beta is 1.07.

Meritage Homes is the eighth-largest public homebuilder in the United States.

Meritage Homes builds and sells single-family homes for first-time, move-up, luxury and active adult buyers across the Western, Southern and Southeastern United States.

Meritage Homes is the industry leader in energy-efficient homebuilding and has received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award every year for innovation and industry leadership in energy efficient homebuilding.

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Meritage Homes Corporation (MTH) - free report >>

M.D.C. Holdings, Inc. (MDC) - free report >>

KB Home (KBH) - free report >>