NVR and TRI Pointe: Top Picks in Homebuilding

09/06/2016 9:00 am EST


Marshall Hargrave

Contributing Editor, Wyatt Investment Research

Housing is one of the few bright spots in the current market, and single-family homes are perhaps the most exciting segment, suggests Marshall Hargrave, editor of Wyatt Research's Daily Profit.

The strong homebuilding data we just saw should also boost homebuilder stocks over the coming quarters. That means they could easily beat analyst estimates in the back half of 2016.

Investors can benefit from the trend. Here are two top homebuilder stocks to play the current housing market:

NVR (NVR), founded in 1979, has been one of the best homebuilders in recent decades.  

In the last decade, NVR shares have outperformed the S&P 500 by threefold. Plus, its $1,678 a share stock price helps keep turnover and volatility in its stock low.

NVR caters to all types of buyers, from first-time buyers to move-up and upscale buyers. This homebuilder still offers the best returns on capital in the industry; its return on equity is over 30%. 

The key to its business model is that NVR doesn’t take many risks. It only builds homes that it has already sold. It only buys lots that have been sold and on which it’s reasonably assured the home will be built. Thus, it doesn’t take unnecessary risk with land development and ownership.

TRI Pointe Group (TPH) s a $2.2 billion market homebuilder focused on single-family homes. It operates in just eight states, mostly in the Sunbelt.

However, its shares have been relative underperformers since its 2013 IPO. Still, trading at less than 10 times earnings, it’s one of the cheapest homebuilders around.

Its focus on single-family housing is an advantage; the single-family housing market is expected to grow 17% this year.

Tri Pointe’s focus market is California, where nearly three-quarters of its owned lots are located. California offers plenty of growth opportunities for TRI Pointe.

In the end, there are a number of top homebuilders out there. In the growing homebuilding market, investors might not see the significance of owning the best.

But what separates a good homebuilder from a great one in this market is the ability to generate outsized returns for investors. NVR and TRI Pointe each present compelling investment opportunities.

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By Marshall Hargrave, Editor of Wyatt Research's Daily Profit

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