It's hardly news that the homebuilding business is tough. Most would agree that even at the best of times, the materials and construction industry is a capital-intensive, barely profitable, and difficult way to make money. Now, the deadly triumvirate of reduced spending, tighter consumer credit, and rising inventories will likely exterminate weaker players in this space.

Simply put, if you make a wrong move in the homebuilding industry, it could cost you.

Since the best offense is a good defense, I ran a screen on CAPS, the Motley Fool's investing community, in hopes of avoiding some of the worst builders the market has to offer.

I used a few simple criteria for this search:

  • To single out the worst of the worst, I screened for businesses with at least 150 active picks and minimal one-star CAPS rankings.
  • These businesses should be losing money hand over fist, so I looked for at least a $5 loss in earnings per share in the past 12 months.
  • I sought balance sheets leaking like sieves, with debt-to-equity ratios greater than 1.5.
  • Finally, while it's not a hard and fast rule, it's important to keep your hands away from falling knives, so I looked for businesses at least 50% off their 52-week highs.

Here's what the CAPS screen came up with. Most of these names probably won't surprise you:


Earnings Per Share

LT Debt-to-Equity Ratio

% Below 12-Month High

Centex (NYSE:CTX)








Beazer Homes (NYSE:BZH)




Hovnanian Enterprises (NYSE:HOV)




WCI Communities (NYSE:WCI)




Standard Pacific (NYSE:SPF)




Palm Harbor Homes (NASDAQ:PHHM)




Source: Motley Fool CAPS as of 7/29.

Please note that these companies could be deep values -- or value traps. As always, before you go long or short, it's important to do your own due diligence. That said, here's what a few CAPS community members have to say about these particular businesses.

Back in March, CAPS member TheGarcipian wrote this about Centex:

Having continued its downward 2-year slide, Centex still looks to me like raw egg waiting to be fried. Purely from a timing perspective, Centex is the wrong place at the wrong time. It markets its houses to first-time home buyers and those middle-class families wanting to "move up" the housing ladder. The queue for either clientele has been shrinking and will continue to do so for who-knows-how-long, probably at least through 2009.

RJMason wrote a rather fitting pitch about KB Homes late last year:

Dear KB Homes,
I have enough homes now. Thank you. You can stop building them.
Signed, America

Regarding Beazer Homes, icanpickm stated in early May:

We are in the worst housing market ever coming off the biggest bubble ever and not one of these major builders has gone bankrupt yet. How is that possible? My money is on the company that is not reporting its results, Beazer!!!! To be the first.

Are these one-star companies ready to break your portfolio, or are they simply misunderstood investments? Our CAPS community of more than 110,000 members -- made up of some of the brightest minds around -- would like to know what you think. Sign up -- it's 100% free.

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Wade Michels makes sure that he can't be taken behind the woodshed by disclosing the stocks that he owns here. He doesn't own any of the stocks mentioned. The Fool's disclosure policy is made out of bricks.