Is now the time to buy Homebuilders Stock? Some say yes

Dueling Fools: Bullish on Homebuilders - Is now the time to buy homebuilders stock?
http://www.fool.com/personal-finance/home/2007/10/19/dueling-fools-bullish-on-homebuilders.aspx
Anders Bylund October 19, 2007
Yeah, you read that right: I'm bullish on homebuilders.

That's kind of like waving a Yankees pennant at Fenway Park, but there it is. It just makes sense when you think about it.

Remember that other bubble that popped seven years ago? Of course you do; the downfall of Yahoo! (Nasdaq: YHOO) and Amazon.com (Nasdaq: AMZN) and the Nasdaq as a whole was too obvious and deliciously ironic to miss. Anything with "dot-com" in its name got pumped up to ridiculous valuations, and then the whole thing came crashing down all at once.
That's what's happening to the housing market right now. Home prices climbed too close to the sun, followed by insane loan terms designed to let people buy houses they really couldn't afford. The joyride is done, my neighborhood is full of unsold flip-me properties, and homebuilder stocks are going the way of property prices -- down, down, down.

And that's where you'll find some of the most amazing deals you'll ever see on the stock market.
Look back at the tech bubble again. Yes, it hurt to hold stock in the big Y or Amazon back in 2000. But if you bought those stocks when they bottomed out in 2001, you'd be sitting on better than a four-bagger in Yahoo today, and a Lynch-esque 10-bagger in Amazon -- better than a 40% annual return, my friend.

That's the kind of rebound opportunity we're seeing in the housing market today. An entire industry just can't roll over and die, especially one as ingrained into the American economy and culture as homebuilding. And some of these companies are brilliantly run operations that will simply ride out this storm, rising phoenix-like from the ashes in a couple of years.
So the trick is to find the good homebuilders, those that will survive the shakeout and pounce on a less competitive market when the credit crunch is over. Take a look at these candidates, for example:

Again, you're not dreaming or hallucinating. You can still find profitable homebuilders whose stocks are priced well below their annual sales or tangible book values. They're household names like Ryland and Toll Brothers, and most of them back up their numbers with strong cash flows, too.

It's just a matter of diving into that pile of excellent value propositions and finding the ones most likely to survive the breakdown. Every crash has a bottom, and while it's tough to call the lowest point with precision, I think we're close enough now to warrant some trash-picking.

Is Now the Time to Invest in Homebuilders Stock? Um, no...

National home builders are suffering from lower stock prices right now and some investors might think it's time to buy buy buy.

Forget it. While Centex, KB Homes and Lennar Corp., all of which have developments in Polk County, are suffering, now might not be the time to invest."Any time you start sector betting, you're concentrating your risk in one area," said Laura Hawley, a financial planner and vice president of Allen & Company in Lakeland.
On a national level, the home market isn't showing any signs of rebounding.Just 5.04 million homes were sold in September, down 19.1 percent from 6.23 million in September 2006.
This past week's home sales reports, released by the National Association of Realtors on Wednesday, sent builder stock prices tumbling.

Centex shares dropped 37 cents to $24.27. DR Horton Inc., one of the nation's largest builders, fell 49 cents, or 3.9 percent, to $12.22, while Lennar Corp. slid 37 cents to $22.07. Beazer Homes USA Inc. had shares decline 11 cents to $9.69."It is really just buyer beware," she said.Hawley likened the scenario to the dot com market bust in 2000."A lot of those companies that were blue chip stocks never recovered," she said. "It doesn't mean these companies are going to come roaring back like they were."

And when it comes to building new homes, it doesn't get much better. The Commerce Department reported Wednesday that construction of new homes fell 10.2 percent in September to a seasonally adjusted annual rate of 1.191 million units. The decline was more than double the 4.2 percent drop that analysts had been expecting and it pushed activity down to the lowest level since March 1993.

"I think the real estate market in general isn't done," Hawley said. "I think we still have a lot of weakness there."But Polk County, Florida is some ahead of the building bust curve. Contractors across the county pulled 271 new home permits last month, which is an 8.1 percent decline from 295 permits in September 2006. And while it is still the 19th consecutive month permit totals have declined, the lower decrease is encouraging. For more than a year, builders have sought some relief to the sluggish housing market.