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Two home builders stocks down over 40% too cheap to ignore

Two home builders stocks down over 40% too cheap to ignore
Dino
Kurbegovic
2 months ago
3 mins read

Investors looking for cheap stocks could possibly rejoice at the prospects of ever-decreasing share prices in 2022. Steel manufacturers and home builders are two of the many industries that have experienced significant setbacks and seem to be priced for doom.

In particular, home builder stocks have fallen on average 40% this year, reflecting a broader pullback in economically sensitive stocks; on the other hand, balance sheets seem to be robust and ready to tackle a recession. 

Further, new data, which came out on June 24, showed a surprising jump in new home sales, possibly indicating that home builders’ earnings may be robust going forward. Thus, Finbold has identified two stocks from the sector that lost over 40%, which might be a cheap find for long-term investors. 

Toll Brothers (NYSE: TOL)

America’s luxury home builder, Toll Brothers, released its earnings on May 24, breezing past earnings estimates by Wall Street. Namely, the company is expecting deliveries of 11,000 to 11,500 units in 2022, with the average price per home of $890,000 to $910,000.  

Meanwhile, the revenue the company posted was $2.2 billion, a year-on-year (YoY) increase of 14%, beating estimates by $80 million. Further, the firm reported earnings per share (EPS) were $1.85, a beat of $0.25. As a bonus, the company offers a 1.79% dividend yield. 

Currently, year-to-date (YTD), the shares are down 36.5%, owing to the slight bounce off of the $40 lows in the recent trading sessions. Despite the latest bounce, the shares are still below all daily Simple Moving Averages (SMAs), trading in the $40 to $50 range. 

TOL 20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

Comparably, analysts rate the shares a moderate buy, predicting that for the next 12 months, the average price could reach $57.14, 28.12% higher than the current trading price of $44.60.

Wall Street TOL analysts’ price targets for TOL. Source: TipRanks

Lennar Corporation (NYSE: LEN

Lennar posted their Q2 earnings on June 21 and, with a solid guidance and earnings beat, raised the entire home builders cohort with it. Specifically, the company posted $8.36 billion in revenue, increasing 30% YoY, beating estimates by $270 million. 

Similarly, posted EPS was $4.69, beating expectations by $0.74, additionally, the backlog of homes increased by 16% to 28,624 homes, new orders increased by 4%, with gross margins increased to 29.5%. Sweetening the deal is a 2.13% dividend yield offered by the firm. 

Comparable to TOL, LEN shares are also down 36.8% YTD, despite the bounce the company created with their earnings beat. Shares are now trading below all daily SMAs; however, an increase in trading volume has been noted in recent sessions, with the stock staying in the range between $81 and $62. 

LEN 20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

As a result, analysts rate the shares a moderate buy, predicting that the average next 12 months price could reach $85.57, 21.26% higher than the current trading price of $70.57.

Wall Street LEN analysts’ price targets for LEN. Source: TipRanks

Despite global macroeconomic headwinds, and rising rates in the U.S., home builders seem undervalued at this moment, despite the short-term bounce shares have seen due to a strong showing by Lennar. 

Investors looking for stocks that could weather a recessionary storm should look no further than the two above. If some short-term volatility does occur, investors can still enjoy the generous dividends these companies offer. 

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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Dino Kurbegovic
Author

Dino is an investor and technology enthusiast with years of experience in managing complex projects. At Finbold he covers stories on stocks, investing, micro and macroeconomic trends. Also, he’s also building a micro solar power plants in his hometown.