Positive Housing Data Powers Pulte
Has the housing bottom finally arrived? At least a case can be made for getting closer to that bottom and ensuing rebound following today's bullish data.
Shares of Pulte Group (PHM) surged 5.4% today following positive housing data that is extending a now lengthy bullish run for the homebuilders sector at large. Maybe the housing bottom has finally arrived.
At least a case can be made for getting closer to that bottom and ensuing rebound following today's bullish data. The MBA Mortgage Applications Survey said applications for new home loans jumped 23.1% from the prior week. Add to that the National Association of Home Builders/Wells Fargo housing market index soared four points to 25 in January, easily topping the reading 22 economists expected.
That's good for the fourth straight increase, and it's good enough to be lighting a fire under shares of Pulte and its rivals. Not surprisingly, the past year has been a rough one for Pulte, and the shares are off more than 12% in that time.
Narrow the time horizon, and things look better. A lot better. In the past month, Pulte has soared 34%. In the past three months, the shares have returned a staggering 68%. As is the case with other homebuilders, Pulte could be ready to pullback,analysts have opined that. Last week, Guggenheim downgraded Pulte to neutral with an $8 price target.
Today, the stock is just pennies away from that level. Looking at the chart, if $8 proves to be resistance for Pulte, it would be more of the round number variety, not material resistance. Actually, the stock has a clear runway to challenge its 52-week high over $8.60.
The Risks: Pulte currently sports a forward price-earnings ratio of 36, which is more than triple that of Apple (AAPL). Granted, that's obviously not an apples-to-apples comparison. Another risk regarding Pulte, besides valuation, could be that earlier this month, Goldman Sachs cautioned investors regarding the rally in homebuilders. Take that for what it's worth, but it should be noted most of the marquee homebuilders, Pulte included, have climbed since Goldman's call.
Pulte has operations in approximately 60 markets throughout the country. A couple of years ago, that would have been a nail in the stock's coffin. Today, that type of market exposure could prove to be a good thing, especially when the NAHB tells the market every region in its January survey saw increases.
Is Pulte overbought? Perhaps, but there are still potential catalysts to drive this stock higher, and they arrive as soon as Thursday. That's when the Commerce Department releases housing starts data for December 2011. On Friday, the National Association of
Those might be the catalysts to boost Pulte above $8, assuming it doesn't happen today.
Editor's Note: This content was originally published on Benzinga.com by Gordon Wilcox.
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