UBS Analyst Says Watch Homebuilder Stocks (TOL, HOV, BZH, KBH, LEN, RYL, SPF)
January 26, 2010 4:24 PM
David Goldberg, an analyst from UBS, recommended today that investors keep an eye on homebuilder stocks for a possible buying opportunity.
Goldberg cites the soft housing prices for November as an indicator that the market's recovery is anything but certain. He says that investors can expect a "pattern of uneven results" in data such as sales and prices that will eventually stabilize in the latter half of 2010. Prior to that, though, Goldberg expects homebuilder stock value to dip by 10-15% - at which time he expects to become more "constructive" on the industry.
He gave Toll Brothers (NYSE: TOL) a 'Buy' rating, and gave a 'Neutral' rating to the following stocks: Hovnanian (NYSE: HOV), Beazer (NYSE: BZH), KB Home (NYSE: KBH), Lennar (NYSE: LEN), Ryland (NYSE: RYL), and Standard Pacific (NYSE: SPF).
I agree with him on a few points. The first is that housing prices are weak. That's no secret. The second is that the economy probably will start to stabilize towards the latter half of 2010. Housing stocks might even grow between now and then. But while all of that makes sense - as much sense as predicting the financial future can make - I disagree with him on two points.
I also believe that homebuilder stocks will dip by at least 10-15%. But, I think the dip will be a bit deeper and more prolonged than he envisions. For starters, several of these companies have used accounting tricks - not construction sales - to turn a profit, artifically increasing the value of the stock to where the industry as a whole is probably overvalued. And while existing home inventory may be dropping, the Fed will more than likely raise the interest rate later this year - which will stave off would-be homebuilders due to rising costs in constructing a home.
In the end, though, Goldberg is fundamentally correct. Buy low, sell high, right? Catch the industry at the right time and you could turn a profit. But that's just playing a numbers and momentum game, not looking at the companies themselves. I don't recommend getting into the homebuilder market until there is a substantial foundation of growth and improvement in homebuilding companies.
The full article can be found here at CNBC.com.
