Why would you want to own stocks as boring and old-fashioned as residential construction stocks when you could own exciting, glamorous big tech stocks that all the hotshots on CNBC are always talking about? Well, because it’s one of the major sectors now showing up on value investor screens.
For those who look for the characteristics that tend to define a value stock – low price-earnings ratios, a steady record of making money, the regular payment of dividends – this group is a fit. These companies are not just single family home builders but also construct multi-family homes, condominiums, apartments and, in some cases, mobile homes. Here are five stocks now hitting the value screens.
Century Communities
Century Communities (CCS, Financial) is headquartered in Greenwood Village, Colorado with offices throughout the country. The stock trades at a low price-book multiple of 1.53. The price-earnings ratio of 6.3 is significantly below the Shiller S&P 500 price-earnings ratio, which now sits at 38.58.
Earnings per share growth this year is 69.3%. The past five-year EPS growth rate is 26.7%.The New York Stock Exchange-listed stock has a relatively light average daily volume of 533,000 shares. Century Communities pays a dividend yield of 0.89%.
KB Homes
KB Homes (KBH, Financial) is based in Los Angeles with regional offices and partners all around the United States. The price-earnings ratio is 9.41 and it trades at 1.34 times book value.
Earnings per share grew 9.8% this year. The EPS growth rate over the past five years is 29.9%. KB Homes is paying a 1.43% dividend. Average daily volume on the NYSE is just over 1.66 million shares.
Lennar Corporation
Lennar Corporation (LEN, Financial), in business since 1954, has corporate offices in Miami. It’s been traded on the New York Stock Exchange since 1972. The price-earnings ratio of 9.74 is much lower than that of the market as a whole, and the stock goes for 1.66 times book value.
The earnings per share growth is 36.8% this year and the EPS growth rate over the last five years is 17.9%. Long-term debt is much less than shareholder equity. Lennar’s dividend is 0.95%. Average daily volume is 2.22 million shares.
M.D.C. Holdings
M.D.C. Holdings (MDC, Financial) is headquartered in Denver and trades at 1.55 times book with a price-earnings ratio of 7.42.
Earnings growth this year is 62.1%, and for the past five years, the growth rate is 40.7%. M.D.C. Holdings pays a dividend yield of 3.11%, a higher payment than the other residential construction firms listed here. Average daily volume on the NYSE is just over 500 million shares, which is light enough that the major institutional firms might not find it liquid enough for their holdings.
PulteGroup
PulteGroup (PHM, Financial) is a NYSE-listed name with a corporate home in Atlanta, Georgia. It trades with a price-book ratio of 1.99 and a price-earnings ratio of 8.5.
The earnings per share growth this year comes in at 41.6%. The past five-year EPS growth is 30.6%. Shareholder equity is greater than long-term debt. PulteGroup rewards investors with a 1.06% dividend. The average daily volume is 2.49 million shares.
This sector is consumer cyclical and highly dependent on the U.S. economy as a whole, including such measures as the consumer price index and the direction of interest rates. Concerns about these factors are likely keeping residential construction stocks in the “out of favor” area compared to big name, big tech growth stocks. That’s what makes them “cheap” when viewed through the classic lens of value investing.
This approach is typically with the long-term in mind. To read up on the basics of this investing strategy, I recommend "The Intelligent Investor" by Benjamin Graham.
