Tags: homebuilders | PE | market | ETF

Value Investors Should Consider Homebuilders

By    |   Friday, 05 Sep 2014 07:57 AM

Housing prices seem to have found a bottom, and that is good news for homeowners. This should also be good news for long-term investors, but many might be overlooking the opportunity.

Several individual homebuilders are selling at low price-earnings (P/E) ratios. Individual investors can also consider homebuilder exchange-traded funds (ETFs), but it is important to know what the ETF holds. The top 10 holdings of the largest sector ETF, SPDR S&P Homebuilders ETF (XHB), are mostly retailers or suppliers to homebuilders. Just one of the top holdings is the stock of a company that actually builds homes.

Eight of the top 10 holdings of iShares US Home Construction ETF (ITB) are companies that build homes. The average P/E ratio of the companies is lower than 15, below the market average. Earnings growth for the companies is expected to average 13 percent a year, above the market average. Based on expected earnings growth, ITB should be trading with a P/E ratio at least equal to the market average, but it seems to be about 15 percent undervalued.

ITB is more than 50 percent below its all-time highs, one of the few sector ETFs that have not recovered from the devastating 2008 bear market.

Value investors know that the time to buy is when other investors are ignoring the opportunity. Homebuilders are one of the few sectors in the stock market that investors are ignoring and could be among the best long-term buys in the current market.

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MichaelCarr
Housing prices seem to have found a bottom, and that is good news for homeowners. This should also be good news for long-term investors, but many might be overlooking the opportunity.
homebuilders, PE, market, ETF
245
2014-57-05
Friday, 05 Sep 2014 07:57 AM
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