Last week we wrote about a potential trade on the homebuilders following a bullish report from KB Home. KBH reported better than expected numbers. And, rather than chase the stock higher we decided to wait for a flag or pullback. We got the pullback Tuesday morning, along with a bounce at the 9/21/50d moving averages and a trend line break out zone.
Additional stocks are listed at the end of this post, as the sector broke higher in unison. The top 20 candidates, in addition to KB Home, are ranked by performance as of the close on Tuesday.
“With the substantial increase in our backlog, we enter the new year well positioned to both expand our scale and deliver that growth at superior margins,” Mezger said.
KB Home – Breakout
KB Home (KBH) released its fiscal fourth-quarter 2020 results on January 12 announcing earnings and revenue topped analysts expectations. Management attributed it’s results to strong growth in new home sales/orders.
“Housing market conditions continue to be robust, as the pandemic has helped propel demand for homeownership, accentuating all the financial, health, safety and emotional benefits it offers.” CEO Jeffrey T Mezger.
Price action bounced on Friday, continuing higher with a bullish follow through on Tuesday. Volume has been above average for the past 5 trading days, while RSI regained a foothold above the 50 zone. Stochastic suggests price action should continue to close in the upper half of the daily range this week. ATR is rising as well, so ranges should continue to expand.
Currently some in the trading room have positions, while we only have positions in BZH. If KBH is strong on Wednesday (RVOL > 2.0) we might start a position this week.
CEO Jeffrey Mezger commented in the January 12 conference call that, “pent-up demographic forces, a housing supply shortage, and favorable mortgage interest rates” have positively affected company performance.
KB Home orders increased 42% to 3,937 homes, while it’s backlog is solid at 7,810 homes, up 54% year over year. Potential revenue from this backlog totaled $2.96 billion, up more than 60%. Mr. Metzer noted this is KBH’s highest backlog in 15 years.
From the conference call.
“With the substantial increase in our backlog, we enter the new year well positioned to both expand our scale and deliver that growth at superior margins,” Mezger said. “Our favorable outlook is supported by the composition of our backlog, a strong line-up of planned community openings, and a leaner, more efficient operation. Most notably, we expect meaningfully higher revenue and earnings in 2021 to drive significant expansion of our return on equity.”
Homebuilders – Additional Candidates
Additional homebuilder and construction stocks in the list below have similar potential. Check earnings dates as many report over the next few weeks.
| SYMBOL | NAME | SECTOR | CLOSE | CHG | % CHG | VOLUME | |
|---|---|---|---|---|---|---|---|
| GNRC | GNRC – Daily Candlesticks, 1280 | Industrial | 267.46 | 14.65 | 5.79 | 756919 | |
| KBH | KB Home (KBH) | Discretionary | 37.73 | 1.97 | 5.51 | 2866673 | |
| ROCK | ROCK – Daily Candlesticks, 1024 | Industrial | 100.98 | 4.93 | 5.13 | 566236 | |
| CX | Cemex SA (CX) | Industrial | 6.68 | 0.29 | 4.54 | 21106810 | |
| MTH | MTH – Meritage Homes Corp. | Discretionary | 85.19 | 3.16 | 3.85 | 460501 | |
| NVR | NVR – Daily Candlesticks, 900 | Discretionary | 4160.00 | 150.05 | 3.74 | 31919 | |
| IBP | IBP – Daily Candlesticks, 1280 | Industrial | 115.07 | 3.82 | 3.43 | 346127 | |
| TOL | TOL – Default Style | Discretionary | 46.12 | 1.50 | 3.36 | 1949725 | |
| TPH | Tri Pointe Homes Inc. (TPH) | Discretionary | 18.34 | 0.58 | 3.27 | 2743616 | |
| PHM | PulteGroup, Inc. (PHM) weekly | Discretionary | 44.01 | 1.31 | 3.07 | 2870456 | |
| MHO | MHO – Daily Candlesticks, 900 | Discretionary | 46.20 | 1.34 | 2.99 | 167813 | |
| DHI | DR Horton Inc. (DHI) | Discretionary | 71.31 | 1.95 | 2.81 | 3938593 | |
| HOV | HOV – Default Style | Discretionary | 35.31 | 0.94 | 2.73 | 86355 | |
| BZH | BZH – Default Style | Discretionary | 15.74 | 0.37 | 2.41 | 225932 | |
| LEN | LEN – Daily Candlesticks, 780 | Discretionary | 78.24 | 1.65 | 2.15 | 2423284 | |
| MDC | MDC – MDC Holdings, Inc. | Discretionary | 48.87 | 0.86 | 1.79 | 597605 | |
| OC | Owens Corning Inc. (OC) | Industrial | 84.45 | 1.48 | 1.78 | 1098437 | |
| GWW | WW Grainger, Inc. (GWW) | Industrial | 394.49 | 5.83 | 1.50 | 340250 | |
| LGIH | LGIH – Daily Candlesticks, 1024 | Discretionary | 102.23 | 1.35 | 1.34 | 329915 | |
| BECN | Beacon Roofing Supply Inc. (BECN) | Discretionary | 43.05 | 0.54 | 1.27 | 290019 |
Join us today in the trading room for our LIVESTREAM broadcast during market hours, as we navigate the current environment. Watch, listen, and trade from 9:20 AM to 4:15 PM Monday through Friday.
Happy Trading,
Vinny
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