Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Dueling Fools: Homebuilder Bull Rebuttal

You're right to point out the weak stragglers of the homebuilding herd, Rick. I won't recommend stocks like Lennar (NYSE: LEN  ) , Centex (NYSE: CTX  ) , or D.R. Horton (NYSE: DHI  ) to anyone, until those firms prove that they can pull off some kind of turnaround. Housing is still a troubled sector, and some of the biggest names are in the deepest trouble.

So housing starts hit a 14-year low last month. Fourteen years -- nearly a decade and a half -- is quite a stretch, isn't it? The last time the American housing market was this cold, I was still in high school, and Sleepless in Seattle was fresh in theaters. Aerosmith was "Cryin'" and "Livin' On the Edge." I bet you hadn't even heard of the Internet yet. Put another way, it was a long time ago.

As bad as the tech-stock crash was, it bottomed out in 2002 after erasing just seven years of gains, stretching back to late 1996. The housing market is on a way colder streak already, and it has to stop somewhere. The population is still growing; the annual U.S. gross domestic product hasn't declined since 1982, except for a minor a blip in 1991; a larger and more affluent population needs to live somewhere; and the old houses do break down eventually. Ergo, there will always be more homes built.

Again, you just need to find builders that stand ready to profit from a rebound, or from stepping in to take the business that the stumblers are dropping. Toll Brothers (NYSE: TOL  ) may not have impressed Rick with its share-price movements, but it's still a profitable business with hefty cash flows and a reasonable debt load. NVR (NYSE: NVR  ) commands 24% gross margin and a 6.7% net take. Compare that to Horton's negative 31.7% net margin and Pulte's (NYSE: PHM  ) negative 25% take, and you start to see where the winners might be hiding.

Could the market get any worse? Of course it could. But that will only shake out more of the underperformers, leaving the real winners in even better positions. So take a chance on a great homebuilder today. The long-term rewards will be worth any short-term pain you might feel along the way.

More Foolish fun:

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 538832, ~/Articles/ArticleHandler.aspx, 10/27/2016 7:13:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/18/2009 4:00 PM
CTX $11.95 Down +0.00 +0.00%
Centex Corp CAPS Rating: *
DHI $28.58 Down -0.23 -0.80%
D.R. Horton CAPS Rating: ***
LEN $41.23 Up +0.02 +0.05%
Lennar CAPS Rating: **
PHM $18.58 Up +0.01 +0.05%
PulteGroup CAPS Rating: ***
TOL $28.07 Down -0.15 -0.53%
Toll Brothers CAPS Rating: ***