Trade of the Day: MTH Stock Scores Major Breakout

Advertisement

Meritage Homes Corp (NYSE:MTH) — This homebuilder designs and sells single-family houses in Arizona, California, Colorado, Florida, Nevada, North Carolina and Texas. These states were generally not severely impacted by the harsh winter. In the fourth quarter, Meritage delivered 1,863 homes, up 27% from a year ago.

The homebuilder’s focus is on the move-up buyer market with homes in the mid-$300,000 range. Through its acquisition of Legendary Communities in July, the company increased its presence in North Carolina and entered into the Georgia and South Carolina markets.

The company’s homebuilding revenue rose 21% in 2014, and S&P Capital IQ estimates it will increase 10.6% in 2015. Its analysts forecast earnings growth of 9% this year to $3.77 and another 6% next year to $4. They have a “strong buy” on MTH stock and recently raised their price target by $7 to $49.

Shares hit a high above $52 in May 2013, and a long-term resistance line drawn from that high intersects at about $43. That line, along with the resistance line drawn from the July high, was smashed by the high-volume breakout of February and March. Higher-than-average volume supports the breakouts, as do several buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), and a golden cross, a long-term buy signal.

Even at the extended price of almost $48, shares are selling for less than 13 times earnings. And last week, against a declining stock market, MTH stock gained several points, closing on Friday at a new high for the year.

Following a major breakout most stocks will pause and retreat. So traders should look to buy MTH stock at $43 with a three-month target of $50 for a return of 16%. A stop-loss order should be entered at $38.

MTH Stock Chart
Click to Enlarge

Chart Key


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/meritage-homes-corp-mth-stock-trade-of-the-day/.

©2024 InvestorPlace Media, LLC