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Where the Homebuilders Stand

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The big question for investors today is whether these stocks are cheap enough for the value players to begin nibbling on them.

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"We've got the supply, and the market has the demand. So it's a match made in heaven."


Who is the voice behind this quote? The voice is none other than Robert Toll, Chairman and CEO of Toll Brothers (TOL), one of the more noted homebuilding stocks. With today's front page article in The Wall Street Journal, I thought it would be interesting to review where the homebuilders stand.

Short selling remains heavy on a group basis at 60% short intensity. Once above 50%, my firm considers this to be above average short selling. Meanwhile our average technical rank is putrid at 19%. The strongest would be 100% and the lowest 19%. Therefore, our overall group rank is 133 out of 146. Below are these statistics in our group tab graph.

The big question for investors today is whether these stocks are cheap enough for the value players to begin nibbling on them. We have run a screen below that has brought in Ford Investor Service's Price/Value score. The Price/Value score is a measure of the intrinsic value of each company based on a proprietary Dividend Discount Model reviews quality, normal earnings and ten year projected growth rate.

Ford then determines the future value by compounding the latest earnings by the growth rate for 10 years and using a nominal P/E ratio to expected earnings at year 10. Last, the future value and dividend payout are discounted by the AAA long term corporate bond rate which is then modified by the quality rating assigned to a company which gives Ford the current intrinsic value.

Of the stocks in the table above, we note that KB Homes (KBH) has attracted the short sellers and no one is short Toll Brothers. We wonder why as they guided lower for the third this year on Tuesday? Meanwhile, the Erlanger Trend Direction (ETD) Indicator has started to move higher for KBH as it is in an Uptrend while TOL remains in a Pullback.

A theme we have been advocating is to focus on names at the low end of their 52-week range where they like the fundamentals going forward even though the company may have had a hiccup and short sellers have overstayed their welcome. A recent example of this was Urban Outfitters (URBN).

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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