Breakouts in Homebuilding

06/29/2015 8:00 am EST


Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Leo Fasciocco, editor of the Ticker Tape Digest, specializes in finding stocks poised to break out of longer-term trading ranges. Here, he looks at two homebuilding stocks that are potential breakout candidates.

WCI Communities (WCIC)

Based in Tampa, Florida, WCI Communities develops luxury homes and communities in Florida. Annual revenues are $431 million.

WCIC came public in 2013. The stock has been working higher in an orderly way. The stock is breaking out from a 13-week flat base.

This move carried the stock to a new all time high. The accumulation and distribution line is in a solid uptrend showing good underlying buying.

We see a strong earnings outlook being the driver to send the stock higher. This year, analysts are forecasting a 42% jump in net to $1.21 a share from 85 cents a year ago.

Analysts have lifted their estimates. The stock sells with a price-to-earnings ratio of 20. We see that as attractive to value investors.

Going out to 2016, profits are expected to leap 40% to $1.69 a share from the anticipated $1.21 this year.

We are targeting WCIC for a move to $31. A protective stop can be placed near $22.50.

M/I Homes Inc. (MHO)

Based in Columbus, Ohio, M/I Homes builds single-family homes in the Midwest and the south. Annual revenues are $1.2 billion.

We are very impressed by the massive accumulation of the shares. The stock is in an 11-week flat base and is getting in position for a potential breakout.

With strong earnings projected this year and next. We see MHO in a good spot to be accumulated in anticipation of a breakout.

The accumulation and distribution line is solidly bullish and is now trending higher confirming good underlying buying.

This year, analysts are forecasting a 35% jump in earnings to $1.81 a share from $1.34 a year ago. Then, going out to 2016, the Street is projecting a 38% gain in net to 2.50 a share.

MHO sells with a price-earnings ratio of just 13. We see that as very low given the earnings growth rate. So, the stock is very attractive to value investors as long as MHO stays on target with its earnings.

We suggest accumulation of a partial stake in MHO with further buying to be done on a breakout over $25.30. We are targeting MHO for a move to $31 after a breakout. A protective stop can be placed near $23.

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