Opportunity in Homebuilder Stocks?

Toddi Gutner

Here’s a stock tip.

Check out the homebuilder stocks. Why? Let me explain:

Last week, Mara Der Hovanesian authored Handicapping the LBO Stakes which created a list of stocks that may appeal to groups of private equity investors flush with cash and looking for deals. The main targets were those “companies with flat stock prices, low earnings valuations and heavy debt,” she wrote. What I found so striking is that nearly every major housing stock is on the list: D.R. Horton; Pulte Homes; Lennar; KB Home and Toll Brothers.

Savvy investors know that if they’re lucky enough to own stock in a company that is being pursued, they can make handsome gains. While no one can say with certainty what companies will be acquired, this list might help.

In this week’s issue, I did a Q&A with Michael Youngblood, the managing director of Friedman Billings Ramsey & Co. His recent research forecasts housing prices in 379 metropolitan statistical areas and shows that the greatest housing appreciation will be coming in the so-called bubble markets. Though he admits he isn’t a stockpicker, he suggests that investors not shy away from homebuilder stocks. Even those companies that operate in bubble markets may still be good buying opportunities.

Given the possibility of a leveraged buyout and the opportunity for some appreciation in these homebuilding stocks, it’s worth taking the time to dig a bit further.

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