3 Homebuilding Stocks for a Quick Trade

The sector is too risky for long-term thinking

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3 Homebuilding Stocks for a Quick Trade

The stock trades for 1.35 times book value. That is neither cheap nor expensive. From an earnings standpoint, Toll is expected to make a small profit of 2 cents a share in the current fiscal year ending Oct. 31. In the following year, profit is expected to jump to 46 cents a share.

At current its current price of $20.80, Toll trades for a very hefty 42 times 2012 expected earnings. In the last reporting period, Toll missed expectations by 8 cents a share. That miss suggests that there is risk in owning Toll at these prices.

Slow and steady growth is likely to be Toll’s future. Single-digit profit growth once the market does stabilize will be its new normal. It would be hard to pay more than 10 times earnings for this stock let alone 42 times earnings in a period still more than a year away.

Lennar

Shares of Lennar have had a nice boost over the last week after the company reported results that beat expectations — the stock is up a solid 5%. Before the turnaround, the stock had been down about 24% from highs earlier this year.

With shares trading at 1.3 times book value, investors are squarely focused on earnings. The hope there is that the company will return to levels seen before the stock market collapse. Analysts have Lennar making a profit of 53 cents a share for the year ending Nov. 30.That number nearly doubles to $1.01 a share in the following year.

This is where traders can ride the wave of hope to big profits. The growth might be fantastic on the surface, but once Lennar hits that peak, profit growth can be expected to slow. The recovery fanatics won’t worry about such trivial thoughts — they will just blindly buy shares because the company is doing well on an operating level and profits growth in the near term is huge.

It would simply not be wise to hold any homebuilding stock for the long term. These stocks are now trading vehicles. The days that we lost in 2008 aren’t returning any time soon.


Article printed from InvestorPlace Media, http://investorplace.com/2011/06/3-homebuilding-stocks-for-a-quick-trade/.

©2014 InvestorPlace Media, LLC

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