Housing stocks have been hammered in recent months. But the selling may be overdone, says Osman Arain, an analyst with Clear Asset Management, an independent research firm. Arain recommends buying shares of beaten-down Building Materials Holding Corp. (symbol BMHC).
The stock has lost one-third of its value since hitting a high of $99 last fall. "Given the low valuation at which many housing-related stocks trade, a lot of bad news is already likely priced in the stocks," says Arain.
Building Materials, which is based in San Francisco but operates throughout the United States, has two segments. BMC Construction provides construction services -- such as concrete work and plumbing -- for homebuilders. It also sells construction materials. BMC West manufactures and distributes building-related materials such as lumber, wall panels and floor and roof trusses to homebuilders and contractors.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Like other housing-related stocks, shares of Building Materials look remarkably cheap. They sell at 7.5 times last year's earnings and a bit more than 7 times the $9.59 per share that analysts, on average, expect the company to earn in 2006.
But Building Materials isn't a mere value play. "Although we consider Building Materials a value stock, it has been growing rapidly," Arain says in a note to clients. Revenues jumped 39% in 2005. Return on equity, a measure of profitability, was also extremely high, at 32%. Over the next five years, analysts expect earnings growth of 15% annually, according to Thomson First Call. The stock, which has a market value of less than $1 billion, trades at 0.3 times sales and at two times book value.
There are risks here, though. The firm's debt-to-equity ratio is 61%, "significantly less" than most of its peers, says Arain. Still, in past housing downturns, some companies have drowned in their debt. Most important: How deep will the slowdown in new home construction be, and how long will it last? If the decline is modest and short, this stock is likely a steal. But if the housing bears are right, and the market craters, this stock will fall with the rest of the housing industry. With this stock, Arain argues, you're paying a low price to bet against the housing bears.
--Steve Goldberg
-
Social Security New Rule: Overpayments Must Be Paid Back 100%. Why It MattersAs of March 27, the SSA will require beneficiaries who have been accidentally overpaid to repay 100% of the money, reversing a previous policy that allowed for only 10% recoupment.
-
Medicare and Medicaid Employees Offered New Buyouts: What You Need to KnowFederal HHS workers who inspect food, research diseases and administer Medicare and Medicaid are offered $25,000 buyouts
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
