Buckingham: Homebuilding Profits

02/07/2003 12:00 am EST

Focus:

John Buckingham

Editor, The Prudent Speculator

"Although rates are unlikely to move much lower, the housing industry is expected to remain quite healthy for the foreseeable future--even if a slowdown from record high levels sets in," notes John Buckingham, editor of The Prudent Speculator. "Meanwhile, new home construction has shown no signs of slowing. The same holds true for sales of existing homes." The service‚Äôs latest "stock of the month" is a home builder.

"While we recognize that many fear a housing bubble and economic logic dictates that home prices cannot maintain the rapid growth percentages of recent year, we continue to believe that there has been no wild speculation in the share prices of large, well-capitalized homebuilding stocks, such as Centex (CTX NYSE). Centex, which also operates in the financial services and investment real estate business, is presently building more than 525 US neighborhoods serving 95 metropolitan markets in 25 states.

"The well-respected company boasts an impressive track record of never having reported a quarterly or annual loss since going public in 1969, and it has posted record earnings in each of the last six years. That winning streak should reach at least eight, as CEO Laurence Hirsch recently said the company expects to earn between $8 and $8.30 per share in fiscal 2003 and $8.75 to $9.75 in fiscal 2004. Incredibly, the stock trades for just six times estimated earnings, despite excellent growth prospects thanks to a strong balance sheet, favorable demographics, low interest rates, and industry consolidation opportunities. We think this top-notch homebuilder merits a place in most portfolios and we would now buy CTX up to $53.21 per share."

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