01/23/2015 7:00 am EST
John Buckingham is a leading value investor, money manager, and editor of The Prudent Speculator. For his more conservative Top Pick for 2015, he turns to the homebuilding sector.
MDC Holdings (MDC) is a builder and seller of homes with operations in 11 states under the name Richmond American Homes.
MDC also originates mortgage loans and title agency services primarily for its home buyers. In Q3, the company missed analyst expectations for both sales and profits, reporting $418 million in revenue and $0.38 per share in earnings.
Despite overall increases in home prices during the last few years, MDC encountered increased land and construction costs.
Also negatively impacting results were the lowered loan limits for federally backed FHA loans (especially for first-time buyers).
Despite recent difficulties, we believe MDC is well-positioned to benefit from continued improvements in consumer confidence and employment, as well as the still historically low interest rate environment.
MDC sports a solid backlog of business, a broad geographic footprint, successful cost control initiatives, and a healthy balance sheet. We like the rich 4% dividend yield and that earnings are projected to increase in 2015 and 2016.