No sector was hurt as much as housing during the Great Recession of the last decade. Most analysts said that housing would take a decade or more to recover. California, Nevada, Texas, Arizona, and Florida were among the hardest hit states. Now, the U.S. economy is improving and the labor market is recovering. Inventories of unsold homes are down and builders are now actively building again. At the Ira Sohn Conference 2013, Steve Eisman from Emrys Partners listed these 3 homebuilders as his favorites.
The company also serves as an investor and manager of funds that invests in real estate assets through its Rialto Investments division. Lennar Corporation (NYSE:LEN) delivered 13,802 new homes in 2012. The average sales price of a Lennar Corporation (NYSE:LEN) home was $255,000 in fiscal 2012, compared to $244,000 in fiscal 2011 and $243,000 in fiscal 2010.
Lennar Corporation (NYSE:LEN) has been a great performer over the past year, rising over 62%. The company just posted better than expected earnings of $0.26 per share versus expectations of $0.15. Revenue also came in better than expected at $989.9 million compared to expectations of only $898 million.
Lennar Corporation (NYSE:LEN) is positioned well as the housing market continues to recover. In the prime New Jersey market, Lennar has its Greenbriar communities targeting retirees with its “Everything’s Included” buyers program. The Greenbriar communities have a number of housing options and offer numerous amenities, including a golf course, tennis courts, and a marina. In the south, Lennar is rolling out new developments in fast-growing areas of Florida, Georgia, and Texas.
Standard Pacific Corp. (NYSE:SPF) builds single-family homes in Arizona, California, Colorado, Florida, North Carolina, South Carolina, and Texas. Some highlights from the company’s 2013 first quarter earnings include:
- Net income of $21.8 million, or $0.05 per diluted share, vs. $8.5 million, or $0.02 per diluted share.
- Net new orders of 1,394, up 49%; Dollar value of net new orders up 74%.
- Backlog of 1,851 homes, up 90%; Dollar value of backlog up 117%.
- Average selling price of $375,000, up 9%.
- 947 new home deliveries, up 48%
. - Gross margin from home sales of 21%, compared to 20.3% last year.
I really liked this earnings report. The company is performing very well and is well-positioned as the economy strengthens. The stock price is evidence of this as it is up over 76% in the past year.
Standard Pacific Corp. (NYSE:SPF) is unique among homebuilders in that their primary market is the move-up market. In other words, their buyers are upgrading to a premier community. Their price range goes up to $1 million and their average selling price in California is $500,000. Standard Pacific Corp. (NYSE:SPF) should continue to perform well as the luxury market is recovering faster than the first-time home buyer market is.
PulteGroup, Inc. (NYSE:PHM)
builds homes in approximately 55 markets in the U.S. The company builds homes under the Centex, Pulte Homes, and Del Webb brands. PulteGroup, Inc. (NYSE:PHM), like Standard Pacific Corp. (NYSE:SPF), had a good first quarter of 2013. Net income for the quarter was $82 million versus a net loss of $12 million in the prior year. According to PulteGroup, Inc. (NYSE:PHM) Chairman, President & CEO Richard J. Dugas:
The stronger demand which the housing industry saw throughout 2012 has carried into the spring selling season of 2013. We experienced higher traffic in our communities with buyers feeling a greater sense of urgency given the combination of limited product inventory and rising prices found in many markets throughout the country.
Home sale revenue for the first quarter was up 35% to $1.1 billion compared to $814 million last year. Closings increased 23% to 3,833 homes and the average sales price increased $26,000 to $287,000. For the quarter, the home sales gross margin was 22.9%. Contract backlog at quarter end was $2.4 billion and represented 7,825 homes.
This was just a great quarter for PulteGroup, Inc. (NYSE:PHM). Revenue came from home sales and not from real estate transactions or land sales. The company was also able to raise home prices. Those are two very bullish signs going forward.
PulteGroup, Inc. (NYSE:PHM) is one of the top builders of active adult communities in the U.S. This segment is one of the fastest-growing segments in housing. As more and more baby boomers retire, look for PulteGroup, Inc. (NYSE:PHM) to benefit.
Foolish assessment
I think all three stocks are great ways to play the housing recovery. Even though all three have performed well over the past year, they are still off their all-time highs last seen in 2005. I think all three are worth buying.
The article Play the Housing Rebound With These 3 Homebuilders originally appeared on Fool.com and is written by Mark Yagalla.
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