Homebuilders are in the perennial stock market toilet right now. But, when everyone else is running away from a sector sometimes its the best time to buy. Meritage Homes (MTH) I think deserves consideration. At $26.75, it is near its 5 year lows and it is down 50 percent from last years highs of over $51.00. It sports a PE of 4.4 and a forward PE of even with all the bad news under 15. Price to sales and Price to book are both under 1 which is ridicuoulsy low and indicates value. Return on Equity of close to 17 is also very good. Total debt of close to 900 million is a concern with only 30 million in cash on hand. That said, all homebuilders carry a significant amount of debt due to the land they hold on their books. Book Value per share is also 39, which again indicates value.
My opinion is most if not all of the bad news is priced in the homebuilders at this point and any good news going forward will result in moves to the upside. Is it possible 6 months from now, you may even get it 10% cheaper, possibly, but i don't think here is a bad place to start a position.
As full disclosure, I bought earlier in the year at 31 and have lost about 20% but again, I think at this point the bad is priced in. I like two sectors more and more as this year wears on, homebuilders and financials. I still love the big banks which I think have been beaten up over concerns that have not and may not even materialize. Bank of America, Wachovia and JP Morgan are certainly all worth a look now. In the meantime with BOA, you get over 4% in dividend which compares favorably with what you can get in a money market right now.
Good luck to you all!
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