KB Home (KBH), The Ryland Group, Inc. (RYL), PulteGroup, Inc. (PHM): Explosive Gains in the New Building Boom

If forced to choose between the two, The Ryland Group, Inc. (NYSE:RYL) would appear to be a preferable holding compared to Pulte.

The best opportunity inside a great opportunity

The upward trend in the home building industry presents a great opportunity for investors who get on board now, even though it has already been underway for about 18 months. D.R. Horton, Inc. (NYSE:DHI) appears to offer one of the best current opportunities for profits in the sector, based on its current valuation.

With a forward P/E ratio of 17 and a five-year projected earnings growth rate of 22.9%, this business is dramatically undervalued compared to the other businesses covered here. With a debt-to-equity ratio of 0.72 and interest coverage of 24.6 times, it is on far more stable footing than its major competitors and is trading at an exceptionally reasonable 7.8 times cash flow — over a 50% discount to the industry average of 19.6.

D.R. Horton presents excellent growth prospects for investors and appears to be quite undervalued within its industry and compared to the overall market. By almost any metric, it seems to present a compelling opportunity for investment.

Conclusions

While a well-informed speculator has the potential to make exceptional returns by investing in KB Home (NYSE:KBH), investors seeking high returns with less relative risk should certainly take a very serious look at shares of D.R. Horton. Those investors who wish to take advantage of the positive trend in home building but have a strong desire to spread the risk over a broader base than just one or two stocks can look to the SPDR S&P Homebuilders (ETF) (NYSEARCA:XHB), an EFT that holds a broad range of consumer cyclical stocks and homebuilders.

The article Explosive Gains in the New Building Boom originally appeared on Fool.com is written by Ken McGaha.

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