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Barron’s says “OOPS” - after ill-timed call on housing stocks.

edited April 3 in Other Investing
“Home-building stocks are the second-worst-performing group in the S&P 500 index this year—only home-furnishing shares have done worse. The iShares U.S. Home Construction exchange-traded fund (ticker: ITB) is off 28.5%, to about $59. Industry leader D.R. Horton (DHI) is off 31.3%, to $74.51. Barron's wrote favorably on the group in late 2021 in what appears today to be a badly timed article.“ *
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Interesting. I’m accustomed to receiving some good recommendations from Barron’s. However, it sounds like the recommendation was made only 6 months ago - give or take. Anything can happen over such a short time span. The gist of the article is that they like housing stocks even more today.

*Excerpt from “These Home Builder Stocks Are Dirt-Cheap” - Barron’s / April 4, 2022

Stocks mentioned favorably: ITB, DHI, TOL, TMHC, LEN, TPH, KBH, PHM


(I’m not able to provide workable links to Barron’s. Sorry.)

Comments

  • edited April 3
    @hank: the Smead Value fund (SVFAX) is a big fan of home builders. Smeadcap.com has some decent explanations of the managers' reasoning.
  • Just Friday (4/1/2022) Andrew Bary at Barron's had this to say about home builders stocks:

    "The housing market is still robust, but home-building stocks have been rocked this year as investors worry that surging mortgage rates will dampen activity later in 2022 and in 2023.

    The result is that the industry now has the lowest price/earnings ratio in the stock market, at around four times projected 2022 earnings.

    With the sector so inexpensive, the risk-reward equation looks favorable, given that many stocks are trading at, or near, book value.

    Thirty-year mortgage rates have risen to almost 4.7%, from 3% in late 2021. Should they start to slide back, the stocks could rally. And the shares could gain, even if rates hold at current levels—should favorable industry trends continue."

    Like @hank I don't have a non-paywall link to provide but should anyone try to give it a go here's the linked page I read.

    Home Builders Are the Cheapest Stocks Around. Is It Time to Buy?
  • edited April 3
    Read Barron's, but don't bet the house (-:) on anything Barron's say.

    Simple reason may be that homebuilders fell along with the general market and didn't catch the latest rebound (ITB is homebuilders in the chart link below). Also, since Barron's wrote on housing in Fall, Powell is playing a different tune, and then Putin acted up. Moreover, homebuilders are looking at housing 6-9 month down the road.
    https://stockcharts.com/h-perf/ui?s=$SPX&compare=$COMPQ,$INDU,IWM,ITB&id=p27963165230
  • edited April 3
    @Mark. Clearing all data in my DuckGo browser did pull up the article as you linked it above in full one time.. Thanks.

    Read Barron's, but don't bet the house (-:) on anything Barron's say.

    Yes. If a company intrigues you, put it in your tracker and watch how it behaves on different days. Try to find some independent research to read. Learn about how the the company operates. No need to be in a rush. Most stocks that receive positive commentary in the public forum enjoy a short term bounce lasting several weeks.

    With a Barron’s recommendation for a range of companies in the same industry like this one, one might dip into 2 or 3 in small amounts. Perhaps than months later after more knowledge has been acquired combine them into a single one.

    This article answers a puzzle for me. I’d glanced at the YTD returns of Price’s real assets PRAFX the other day and, while up 7% YTD, I was expecting the number to be higher. They do carry some home builders.

    My hunch is that Barron’s is still too early. The drop in home builders might be an early warning sign of a more broad based economic slowdown. I’m not racing to invest here. Of course, investing time horizon as well as existing portfolio composition play a big part in one’s choice of investments.
  • Team....what are your thoughts....when I lay my ear down on the tracks I am hearing layoff's happening or being planned at some larger companies, I know it seems counter to what the gist is in the media with all the help wanted signs, job openings, but I'm thinking that those are the lower paying service jobs or highly specialized, high skill jobs that are open....wonder how this will affect housing markets....

    When I talk to some companies, one of which sells into infrastructure (I'm not comfortable getting into more detail), they say their sales are very strong, having trouble meeting demand but CANNOT figure out where the true end demand is coming from...they would know where all the projects are coming from throughout the USA and can't figure it out. Concerning to say the least.

    So home prices fall, house demand still goes up regardless of employment conditions due to shortage of homes/buildable land...who knows?

    Best,

    Baseball Fan
  • edited April 3
    Thanks for the insights @BaseballFan.

    Your questions are beyond my pay grade.

    But according to the linked article U.S. housing prices climbed to a new record level in March. From my general reading a lot has to do with (1) rising lumber and materials prices, (2) labor shortages in the skilled trades. (3) wage inflation, (4) population shifts due to covid concerns - a growing preference for houses over multi-family.

    Notwithstanding all of the above, housing, like other markets, is prone to periods of boom and bust. I’d say valuations are stretched. The broader economy? Don’t know. I’m a pessimist by nature. The inverted curve might be signaling something. If so, most economists would say it’s 6 months or more out in front of any significant economic deterioration. In that case, it would still leave time to party. Stay tuned.
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