Here's the table Key Metrics for the Homebuilders at Tuesday's close, July 17, 2012.
Centex was purchased by Pulte Homes in 2009 for $1.6 billion. Despite the strong stock performances for the homebuilders since October 2011, the stock prices today are significantly lower than in June 2005. Three of seven homebuilders are overvalued today (DHI, LEN & TOL), while all eight were overvalued in June 2005. I did not use ValuEngine ratings in 2005, but today BZH is rated a sell (2-Engine), while DHI, LEN, RYL & TOL are rated buy (4-Engine). KBH & PHM are rated hold (3-Engine). Sell-rated BZH has traded lower over the past 12 months, with hold-rated KBH up just 11.1% compared to the solid double-digit gains from the others. Today the P/E ratios are out of whack, while they were reasonable in June 2005. Using the Value Levels, Pivots and Risky Levels: Value Level - The price at which to buy on weakness during the time frame referenced; W-weekly, M-monthly, Q-quarterly, S-semiannual or A-annual. You buy on weakness to establish or add to a long position, or cover a short, or become less short. Pivot - A price that should be a magnet during the time frame referenced; W-weekly, M-monthly, Q-quarterly, S-semiannual or A-annual. Risky Level - The price at which to sell on strength during the time frame referenced; M-monthly, Q-quarterly, S-semiannual or A-annual. You sell on strength to establish a short position or add to a short position, or remove a long position, or become less long. I advocate the use of GTC Limit Orders to add to long positions or become less short on share price weakness to the Value Levels. Traders should enter GTC Limit Orders to reduce the long positions or to add to a short position on strength to Risky Levels.
Back in June 2005, I correctly worried about a bubble in homebuilder stocks and here's the monthly chart for Toll Brothers from back then.
The daily charts for the top performing homebuilders today show potential mini-bubbles. To review my "Buy and Trade" methodology, please read "Suttmeier's 'Buy and Trade' Investment Strategy".
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