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Welcome to Episode #349 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Tracey is going solo again to talk about the housing market. More homebuilders have reported quarterly earnings and now some of the big renovation retailers, like Home Depot, have also done the same.
Housing froze at the end of last year as mortgage rates jumped over 7%. But with rates down to 6% in 2023, traffic to the new construction sales centers rose. The homebuilders reported improvement in volumes for the first 4 to 6 weeks of 2023.
But now mortgage rates are back near 7% again. Have buyers moved to the sidelines once again?
Investing in Housing Industry Stocks
The homebuilders have been on a tear the last 3 to 6 months on the “hope” trade. The “hope” trade is when the investor is “hoping” that the spring season is going to be good so they buy the stocks ahead of time. Homebuilder stocks often rise in the months leading up to the spring season as a result.
But investors could also be looking at furniture and home remodeling, which are also tied in to home buying. These were hot stocks during the pandemic. But is the consumer tapped out as inflationary pressures rise?
Tri Pointe Homes had a tough fourth quarter. It saw net orders fall 69% to 444 from 1424 in the year ago period thanks to higher mortgage rates. But in the first quarter, orders had already come in at 421 through January. That’s almost the entire Q4 amount.
Shares of Tri Pointe Homes are up 28% over the last 6 months. Yet it’s still attractively priced with a forward P/E of just 7.
LGI Homes just reported a record 2022 with full year adjusted gross margins of 29.2%, a new company record.
LGI Homes was positive on the first 8 weeks of the year with the net orders pace of 7.2 homes per active community versus just 2.9 in the fourth quarter. But now mortgage rates are rising again.
Shares of LGI Homes are up just 2.3% over the last 6 months, after cooling in recent sessions. But it trades at just 12x forward earnings.
PulteGroup is one of the largest publicly traded homebuilders. It has already reported fourth quarter results.
PulteGroup’s earnings are expected to decline 33% in 2023 off of a red-hot 2022. It made $10.80 last year and the Zacks Consensus is looking for $7.28 in 2023.
Shares of PulteGroup have jumped 25% over the last 6 months but still remain cheap, with a forward P/E of 7.5.
Is PulteGroup a value trap as those earnings decline?
Home Depot is big for both do-it-yourself and professional renovators and builders. Recently, Home Depot announced it was raising its dividend 10% for 2023 but it is seeing cooling among DIY’ers this year.
Earnings are expected to rise just 1% in 2023. Shares of Home Depot have fallen 8% over the last 6 months and are now looking more attractive, with a forward P/E of just 17.5.
Masco owns high profile home brands such as Delta and Hansgrohe faucets and Behr paint.
Earnings are expected to fall 13% in 2023 to $3.29 from $3.77 last year. Shares of Masco have gained 13.7% year-to-date but are down 4.6% over the last 6 months.
Masco has a forward P/E of 16 and pays a dividend yielding 2%.
Is Masco cheap enough to dive in?
What Else do you Need to Know About the Housing Stocks in 2023?
Listen to this week’s podcast to find out.
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Should You Buy the Housing Stocks?
Welcome to Episode #349 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Tracey is going solo again to talk about the housing market. More homebuilders have reported quarterly earnings and now some of the big renovation retailers, like Home Depot, have also done the same.
Housing froze at the end of last year as mortgage rates jumped over 7%. But with rates down to 6% in 2023, traffic to the new construction sales centers rose. The homebuilders reported improvement in volumes for the first 4 to 6 weeks of 2023.
But now mortgage rates are back near 7% again. Have buyers moved to the sidelines once again?
Investing in Housing Industry Stocks
The homebuilders have been on a tear the last 3 to 6 months on the “hope” trade. The “hope” trade is when the investor is “hoping” that the spring season is going to be good so they buy the stocks ahead of time. Homebuilder stocks often rise in the months leading up to the spring season as a result.
But investors could also be looking at furniture and home remodeling, which are also tied in to home buying. These were hot stocks during the pandemic. But is the consumer tapped out as inflationary pressures rise?
5 Stocks in the Housing Industry: Buy or Not?
1. Tri Pointe Homes, Inc. (TPH - Free Report)
Tri Pointe Homes had a tough fourth quarter. It saw net orders fall 69% to 444 from 1424 in the year ago period thanks to higher mortgage rates. But in the first quarter, orders had already come in at 421 through January. That’s almost the entire Q4 amount.
Shares of Tri Pointe Homes are up 28% over the last 6 months. Yet it’s still attractively priced with a forward P/E of just 7.
Is the worst over for Tri Pointe Homes?
2. LGI Homes, Inc. (LGIH - Free Report)
LGI Homes just reported a record 2022 with full year adjusted gross margins of 29.2%, a new company record.
LGI Homes was positive on the first 8 weeks of the year with the net orders pace of 7.2 homes per active community versus just 2.9 in the fourth quarter. But now mortgage rates are rising again.
Shares of LGI Homes are up just 2.3% over the last 6 months, after cooling in recent sessions. But it trades at just 12x forward earnings.
Is LGI Homes a deal?
3. PulteGroup (PHM - Free Report)
PulteGroup is one of the largest publicly traded homebuilders. It has already reported fourth quarter results.
PulteGroup’s earnings are expected to decline 33% in 2023 off of a red-hot 2022. It made $10.80 last year and the Zacks Consensus is looking for $7.28 in 2023.
Shares of PulteGroup have jumped 25% over the last 6 months but still remain cheap, with a forward P/E of 7.5.
Is PulteGroup a value trap as those earnings decline?
4. Home Depot (HD - Free Report)
Home Depot is big for both do-it-yourself and professional renovators and builders. Recently, Home Depot announced it was raising its dividend 10% for 2023 but it is seeing cooling among DIY’ers this year.
Earnings are expected to rise just 1% in 2023. Shares of Home Depot have fallen 8% over the last 6 months and are now looking more attractive, with a forward P/E of just 17.5.
Is Home Depot a deal?
5. Masco Corp. (MAS - Free Report)
Masco owns high profile home brands such as Delta and Hansgrohe faucets and Behr paint.
Earnings are expected to fall 13% in 2023 to $3.29 from $3.77 last year. Shares of Masco have gained 13.7% year-to-date but are down 4.6% over the last 6 months.
Masco has a forward P/E of 16 and pays a dividend yielding 2%.
Is Masco cheap enough to dive in?
What Else do you Need to Know About the Housing Stocks in 2023?
Listen to this week’s podcast to find out.