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5 Dirt Cheap Homebuilder Stocks in 2022

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  • (1:00) - Understanding The Complexity Of The Homebuilders Sector
  • (12:30) - Finding Strong Value Stocks: Tracey’s Top Picks
  • (29:30) - Big Takeaways From The Housing Sector: KBH, LEN, TOL, PHM, DHI


Welcome to Episode #275 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.

In 2022, there are a lot of cheap stocks out there.

One group that is especially cheap are the homebuilders. Many of them trade with forward P/Es of 5 or lower. That’s incredibly low.

But with rising mortgage rates, which have already spiked as high as 5% on the 30-year fixed mortgage, are the homebuilders set to see a big earnings slowdown in 2022?

Or are the fears about rising rates over blown?

Interest in New Homes Not Slowing…Yet

Two large homebuilders, KB Home and Lennar, have reported earnings in March so we have real time insight as to what the homebuilders are seeing in their businesses.

And it’s still good even though mortgage rates were rising already when they reported earnings. Both companies reaffirmed their bullish outlooks for this year.

Home buyer demand is still strong. Additionally, the builders still have pricing power, which is allowing them to raise prices to cover rising costs on materials, land and labor.

The homebuilder stocks have sold off double digits in 2022 on fears about a slowing housing market. They are cheap, but could they be traps?

5 Dirt Cheap Homebuilder Stocks in 2022

1.       KB Home (KBH - Free Report)

KB Home is among the cheapest of the large homebuilders. It trades with a forward P/E of just 3.4.

KB Home has fell 23.6% year-to-date and now trades below book value. But even as cheap as the shares are, the insiders have not yet jumped in to buy.

Analysts have mostly been raising estimates since the recent earnings report, with 4 raising and 2 lowering for fiscal 2022 in the last week.

Earnings are expected to grow 68.3% in fiscal 2022 to $10.18. And analysts are still bullish on KB Home for fiscal 2023, with earnings expected to rise another 6.9%.

The analysts don’t expect any slowdown. Yet.

Is KB Home a true deal?

2.       Lennar Corp. (LEN - Free Report)

Lennar recently reported earnings and reaffirmed its full year outlook.

The analysts are bullish too, with 4 estimates higher over the last 30 days for fiscal 2022.

Lennar’s earnings are expected to rise 14.2% year-over-year. And analysts also expect fiscal 2023 to see earnings growth of 9.6%.

Nevertheless, shares have fallen 27% year-to-date.

How cheap is Lennar? It has a forward P/E of 5.3 and a PEG ratio of 0.7.

Should Lennar be on your short list?

3.       Toll Brothers (TOL - Free Report)

Toll Brothers is the largest publicly-traded luxury homebuilder in the United States. Toll said on recent earnings conference calls that 20% of its buyers pay all cash. Will higher mortgage rates even matter to their buyers?

Shares have plunged 31% year-to-date and are now dirt cheap with a PEG ratio of 0.3.

Toll Brothers earnings are expected to rise 51% in fiscal 2022.

Will rising mortgage rates hit their earnings for next year?

4.       PulteGroup (PHM - Free Report)

PulteGroup is one of America’s largest home builders with developments from coast-to-coast.

Shares are down 22% year-to-date and are now trading with a forward P/E of just 4.5. PulteGroup also pays a dividend, currently yielding 1.4%.

PulteGroup is expected to report first quarter earnings on Apr 28, 2022 but analysts are still bullish. 7 estimates have been revised for the full year in the last 60 days. Analysts expect earnings to rise 38.6% in 2021 and another 7.8% in 2023.

Should investors be taking another look at PulteGroup in 2022?

5.       D.R. Horton, Inc. (DHI - Free Report)

D.R. Horton is a large national homebuilder which will report earnings on Apr 26, 2022.

But the analysts have been raising full year earnings estimates this year. 19 estimates were raised for 2022 over the last 19 days, with only 1 estimate cut during that time.

Earnings are expected to rise 39.2% to $15.88 from $11.41 last year.

D.R. Horton’s shares have plunged 27% year-to-date. And, yep, it’s cheap on a forward P/E basis, with a P/E of just 5.1.

Is D.R. Horton a value or a trap?

What else do you need to know about navigating the homebuilder stocks in 2022?

Tune into this week’s podcast to find out.