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5 Margin-Expanding Homebuilders to Build on in the 2nd Quarter

GuruFocus.com
·3 min read

In light of strong growth in February pending home sales, five homebuilders with expanding operating margins, as well as strong Piotroski F and Altman Z-scores are Cavco Industries Inc. (NASDAQ:CVCO), KB Home (NYSE:KBH), M/I Homes Inc. (NYSE:MHO), NVR Inc. (NYSE:NVR) and PulteGroup Inc. (NYSE:PHM) according to the All-in-One Screener, a GuruFocus Premium feature.


Homebuilding sector reports strong growth in February

The National Association of Realtors reported on Monday that pending home sales increased for the second consecutive month during February, with expansion in month-over-month contract activity for each of the four major regions: Northeast, Midwest, South and West.

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The organization's chief economist, Lawrence Yun, said in the press release that February's pending home sales indicate a "very healthy" housing market prior to the coronavirus shutdown. Further, even though home sales are expected to decline during the spring months as the virus continues spreading in the U.S., Yun is "optimistic that the upcoming stimulus package" could mitigate the economic damage and result in a "V-shaped robust recovery later in the year."

As such, investors might find good opportunities among homebuilders with high balance sheets and strong profitability as demand temporarily drops below average.

Cavco

Phoenix-based Cavco designs and produces factory-built homes under the Cavco Homes, Fleetwood Homes and Palm Harbor Homes brands. GuruFocus ranks the company's financial strength 9 out of 10 on several positive investing signs, which include robust interest coverage and debt ratios that are outperforming over 88% of global competitors.

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Gurus with large holdings in Cavco include Mario Gabelli (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies.

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KB Home

KB Home builds single-family homes and communities in states like Arizona, California, Nevada and Texas. GuruFocus ranks the company's profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, expanding operating margins and a three-year Ebitda growth rate that outperforms 83.67% of global competitors.

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Gurus with large holdings in KB Home include Ken Fisher (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).

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M/I Homes

M/I Homes builds homes in the Midwest, Mid-Atlantic and Southern regions. GuruFocus ranks the Columbus, Ohio-based company's profitability 7 out of 10 on several positive investing signs, which include expanding operating margins and a high Piotroski F-score of 7.

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M/I Homes' valuation ranks 10 out of 10 on the back of price-earnings and price-sales ratios that are near 10-year lows and outperform over 82% of global competitors.

NVR

NVR builds single-family detached homes, town homes and condos under three brands: Ryan Homes, NVHomes and Heartland Homes. GuruFocus ranks the Reston, Virginia-based company's profitability 10 out of 10 on several positive investing signs, which include expanding operating margins and a GuruFocus business predictability rank of a perfect five stars.

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NVR's financial strength ranks 8 out of 10. The debt-to-Ebitda ratio is safely below Joel Tillinghast's threshold of 4 and outperforms 84.21% of global competitors.

PulteGroup

PulteGroup builds homes in over 44 markets across 24 states. GuruFocus ranks the Atlanta-based company's profitability 8 out of 10 on several positive investing signs, which include expanding operating margins and returns that are outperforming over 83% of global competitors.

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Disclosure: No positions.

Read more here:

  • 5 Energy Companies With the Strength to Weather the Coronavirus Storm

  • Leon Cooperman 'Optimistic' About Stock Market Reaching a Bottom

  • 6 High Financial Strength Stocks John Rogers and Paul Tudor Jones Agree On



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This article first appeared on GuruFocus.