Toll Brothers Inc (TOL), Taylor Morrison Home Corp (TMHC): This Home Builder Is a Good Buy

KB Home (NYSE:KBH) is another home builder with significant inventory in California, which was one of the hardest hit states during the downturn. The stock has been growing higher and higher over the last 2 years. Since 2012, KB Home (NYSE:KBH) is up almost 200%, from $6 a share to $20 a share. However, recently the company is facing stiff competition and is a laggard among all the housing stocks. Growth is slower with a high cancellation rate of 32%, thereby becoming a less attractive investment.

The gross margin of KB Home (NYSE:KBH) is also the lowest among its peers, standing at 15%. On top of that, it does not have enough cash on hand to make significant investments. The growing debt on its balance sheet is not any good for the stock price. All in all, it looks like KB Home has not benefited much from the housing recovery and might not provide much value to the investors.

As a summary of the peer market competition, Toll Brothers Inc (NYSE:TOL) seems to be the best performing stock looking at all the major indicators. With an EPS growth of 39%, it is selling for 46 times 2013 earnings, which is the highest among all the stocks.

Housing market on the recovery – Invest now

The economic indicators are starting to point towards a strong housing recovery in the US market. Invest now to make the best use of the opportunity. Toll Brothers Inc (NYSE:TOL) is a recognized brand in the country and has been performing well in the last six months. It has a relatively low beta of 1.15 and has a specific target market of high income individuals having a good credit rating. So, it can shield itself from the adverse market conditions better than its competitors. Looking at all the favorable factors at Toll Brothers, I recommend the stock as a buy.

The article This Home Builder Is a Good Buy originally appeared on Fool.com and is written by Tanya Kanodia.

Tanya Kanodia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Tanya is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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