Bargain Stocks or Earnings at Cyclical Highs?

[adios]

Have any of you ever check out the home builders and how apparently cheap their stocks are with decent earnings growth? A few examples

Hovinian - HOV - PE = 7.12

DH Horton - DHI - PE = 5.97

Toll Brothers - TOL - PE = 6.69

Centex - CTX - PE = 7.27

These companies all seem to have little problems with solvency or liquidity. Ok maybe there is a housing bubble, although I believe that the USA housing market is not ubiquitous, and earnings have perhaps peaked for this group. That's what the market seems to be pricing into these stocks as far as I can tell. I haven't gone over the 10-Q's thoroughly but there is some inventory build up in TOL but it doesn't seem to be a big deal to me. I don't own any but am tempted perhaps a small bet.

[Ray Zee]

these companies get eaten alive if interest rates go up just a little. thats one reason p/e is low. another is they yield little and put the profits into the management pockets. if i had to buy one it would be Lennar (Len) they build in the warm climates so their costs are low and can build cheaply. plus thats where the old folks are dieing to live.

[Wildbill]

Stay away from Toll Brothers or anyone else dependent on high priced homes. The market will continue to thrive, but mostly in the lower and middle end. Demand for housing isn't going to subside, just the ability for people to afford it easily. So even if rates go up, people are still going to be buying houses, they just will have to step down. While sales will subside from unsustainable levels, people still are going to buy houses at a normal pace for the most part. What people do is figure out how much they can afford to spend and buy a house that fits their budget. As rates go up, budgets in terms of affordability come down. That is why you want lower part of the scale right now. There are tons of undersupplied markets right now, people's tastes have changed over the years and only new homes really address those desired changes. You can buy a house built 50 years ago, but then you deal with small kitchens, small bathrooms, etc...things people hate now. Say what you want about tastes, but if people want it they will build it for them and that is why new housing is still going to continue even if the economics of home buying change for the worse.

[Porcupine]

Although the earnings growth is decent, the earnings growth trend is not. For example, CTX's (projected) EPS growth for the year ending 3/03 is 32.3%, but only 14.95% for the year ending 3/04. I've been stuck by stocks with huge earnings, but declining EPS in the past, so I keep an eye out for it. That being said, CTX's projected earnings have still been being revised upward over the last few months.