Buckingham: Home Values

11/08/2002 12:00 am EST

Focus:

John Buckingham

Editor, The Prudent Speculator

The Prudent Speculator has been rated by the Hulbert Financial Digest as the #1 performing investment newsletter for Total Return Performance for the past ten and 20 years. Editor John Buckingham searches for  inherent value. He notes, “Although our approach has had its share of downturns, it has worked very well, with returns of about 20% annually over the last 20 years. We continue to believe in buying undervalued stocks and holding them for the long term.” He now sees value in the homebuilding sector.

“The housing bubble may exist in home prices, but it does not exist in housing stocks. Housing stocks are trading at six to seven times earnings, and the earnings are growing at 20-25%. Long-term the demographic trends are very favorable in the housing sector. We have a shortage of housing in this country and the population is aging. I think that the large, publicly-traded homebuilders are taking market share away from the smaller companies. Frankly, they are much better capitalized than they have ever been. 

"In my opinion, the homebuilders are in the best shape they have ever been financially, and yet their stock prices are trading at very inexpensive valuations, especially in a market that seems to be paying attention to earnings and quality. You have homebuilders trading at single digit P/Es and yet growing at tremendously fast rates. If they made routers or something high tech, they’d be trading at 60 times earnings or 100 times. I really like the sector for the long-term. You need to be a long-term investor, no matter what sector you are invested in.

“I’m always asked for my favorite stock. I would emphasize that we value diversification. I like all my children equally. But if I had to choose one stock, it would be D.R. Horton (DHI NYSE), the homebuilder. This is a company that has grown earnings and sales in each of the last 25 years. Even Cisco or Wal-Mart haven’t done that. Yet, the company is trading at six or seven times earnings. Another company in this sector is Centex (CTX NYSE), which would be our other favorite.”

Editor's Note:  All excerpts from the Forbes editors in this issue of The Money Show Digest are from a panel discussion held at The New York Money Show on Friday, October 25th.  Quoted stock performance, portfolio performance, etc., have not been updated to reflect changes in the market since that date.  

For information on the Forbes group of newsletters, visit www.forbes.com/newsletters.

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