SmartMoney sees homebuilders poised for a nice recovery

Posted May 29th 2008 3:20PM by Eliza Popescu
Filed under: Forecasts, Management, Lennar Corp'A' (LEN), Toll Brothers (TOL), Economic Data, Housing

Despite the fact that the challenging housing conditions are still persisting, it looks like that some major housing companies are poised to see the light at the end of tunnel. SmartMoney underlines the fact that there has been some encouraging trend for homebuilders during the past few months.

Major names such as Toll Brothers Inc. (NYSE: TOL), Lennar Corp. (NYSE: LEN), Pulte Homes Inc. (NYSE: PHM), Hovnanian Enterprises Inc. (NYSE: HOV) and D.R. Horton Inc. (NYSE: DHI) showed a nice recovery attempt lately, but the National Association of Home Builders still warns investors to remain cautions regarding companies in the housing sector.

The National Association points out that, "the housing market has shown no evidence of improvement thus far," and the sentiment index is close to a historical low.

Looking at investing in housing stocks, one analyst at T. Rowe Price, Josh Spencer, makes a two-way analysis. From his point of view, housing stocks have a lot of risk if we are talking about their volatility, but they are not as risky when referring to a long-term time horizon due to their current cheap value.

One point of interest for some analysts is Toll Brothers, which came with earnings of $1.23 billion for its April quarter. The company's Chief Executive Robert Toll showed optimism related to its further recovery, while a Soleil Securities analyst lifted her price target on the stock to $28 from $24.

As the past moments have already proved, housing stocks have the potential to outperform difficult times. Just have some patience and be prepared for even more volatility, while staying close to the big builders that have cash. Thus, you can witness some really nice gains using these housing stocks.

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

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