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Chicago, IL – April 07, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Actions recently featured in the blog include: Tri Pointe Homes, Inc. HPT, DR Horton DHI, Lennar Corp. LEN, MDC Holdings, Inc. CDM and Taylor Morrison Home Corp. TMHC.
Here are highlights from Wednesday’s analyst blog:
Annoyed by a rocky homebuilding market? 5 valuable stocks to the rescue
Low inventories, supply chain bottlenecks and the Fed’s anti-inflationary efforts are worsening the situation in the residential construction market. All of these factors are pushing up house prices, making buying a home even more expensive for consumers.
The inventory of unsold existing homes rose slightly to 870,000 at the end of February, equivalent to just 1.7 months of supply at the current rate of monthly sales. For new homes, at the rate of sales in February, it would take 6.3 months to sell the supply of homes on the market, compared to 6.1 months in January. Although supply has increased slightly, it remains difficult for buyers to find available homes.
Meanwhile, the re-emergence of COVID-19 in parts of Asia and Europe has created supply issues in a number of categories, driving up raw material prices for builders. According to an Associated Builders and Contractors analysis of recently released U.S. Bureau of Labor Statistics Producer Price Index data, construction input prices are up 24.4% from a year ago. is one year old for February 2022.
Again, after years of extremely low interest rates, the cost of borrowing is also on the rise. The average interest rate for a 30-year mortgage rose to 4.67% from 4.42% a week ago, according to the latest release from Freddie Mac.
The CoreLogic Home Price Index (HPI) forecast shows home prices rose 20% in February from a year ago. This is the 12th consecutive month of double-digit gains. House prices increased by 2.2% compared to January 2022.
Nonetheless, analysts are cautiously optimistic about the US housing market, given pent-up demand due to low supply and high demand. Investors should note that despite the second consecutive monthly decline in new single-family home sales in the United States in February, reported by the Commerce Department, sales remained above pre-pandemic levels. Market experts believe the new home market will likely improve gradually this year, given pent-up demand, tight supply and notable wage gains.
Invest in value stocks like Tri Pointe Homes, Inc., DR Horton, Lennar Corp., MDC Holdings, Inc. and Taylor Morrison Home Corp. seems cautious, given their strong long-term growth metrics.
Focus on value stocks: hedging against uncertainty
Given the uncertainty, it will be wise for investors to focus their funds on stock valuation. Value investing has always been a common strategy. Historical data suggests that value stocks not only tend to outperform growth stocks, but are relatively less volatile. Since fundamentally sound stocks are now available at a lower rate, it will be prudent for investors (especially risk-averse investors) to grab stocks for long-term gains.
Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best opportunities in the value investing space. You can see the full list of today’s Zacks #1 Rank stocks here.
Below are five homebuilder stocks investors can consider during these difficult times.
Home Tri Pointes: This Irvine, Calif.-based homebuilder benefited from higher prices and improved operating leverage. Cost reduction initiatives and a focus on entry-level buyers added positives.
Tri Pointe currently carries a Zacks rank of No. 1 and a value score of A. TPH shares are down 29.2% year-to-date. Its 12-month forward price-to-earnings (P/E) ratio of just 3.7 is below the industry’s 4.8. Earnings estimates for the current year rose to $4.99 per share from $4.39 in the past 60 days, illustrating analysts’ optimism about the stock’s outlook. The projected figure indicates a 21.1% year-on-year increase.
DR Horton: This Texas-based homebuilder is well positioned for 2022, thanks to its industry-leading market share, strong acquisition strategy, well-stocked supply of land, land and homes as well than to its affordable product offerings across multiple brands.
DR Horton currently holds a Zacks rank of No. 2 and a value score of A. DHI shares are down 31.7% year-to-date. Its 12-month price-to-earnings ratio is 4.5. Earnings estimates for the current year rose to $15.88 per share from $15.80 in the past 30 days, illustrating analysts’ optimism about the stock’s outlook. The projected figure indicates a 39.2% year-on-year increase.
Lennar: This Miami, Florida-based homebuilder continues to benefit from effective cost control and a focus on improving the efficiency of its homebuilding platform, resulting in a higher operating leverage.
Lennar currently holds a Zacks rank of No. 2 and a value score of A. LEN shares have fallen 32.1% so far this year. Its 12-month price-to-earnings ratio is just 4.6. Earnings estimates for the current year rose to $16.43 per share from $16.29 in the past seven days. Lennar’s earnings are expected to grow 15.1% year-over-year in fiscal 2022.
MDC Holdings: This Denver, Colorado-based homebuilder’s build-to-order operating model and focus on more affordable homes were driving factors.
MDC currently carries a Zacks Rank #2 and a Value Score of A. MDC shares have fallen 33.6% so far this year. Its 12-month price-to-earnings ratio is just 3.4. Earnings estimates for the current year rose to $10.61 per share from $10.37 in the past 60 days. MDC’s earnings are expected to grow 35.5% year-over-year in 2022.
Taylor Morrison Home: This Scottsdale, AZ homebuilder’s continued operational improvements, acquisition synergies and robust pricing power have more than offset inflationary pressure and some delayed closings.
Taylor Morrison currently holds a Zacks rank No. 2 and a value score of A. TMHC shares have fallen 24.5% so far this year. Its 12-month price-to-earnings ratio is just 3.1. Earnings estimates for the current year rose to $8.35 per share from $7.11 in the past 60 days. TMHC earnings are expected to grow 61.2% year-over-year in 2022.
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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for more information on the performance figures displayed in this press release.
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Lennar Corporation (LEN): Free Stock Analysis Report
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Tri Pointe Homes Inc. (TPH): Free Inventory Analysis Report
Taylor Morrison Home Corporation (TMHC): Free Inventory Analysis Report
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