PulteGroup is in a newly-formed base as the housing market posts positive data. The homebuilder stock is Thursday's IBD 50 Stocks To Watch pick.
The strong housing market is bringing new life to homebuilder stocks.
Housing Market Shows Improvement
February new home sales came in at 640,00 vs. the 645,000 Econoday consensus, rising from a revised 633,000 in January.
The March National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index (HMI) strengthened to 44 from 42 in February, and 35 in January.
The survey measures current market conditions for new home sales in the next six months, as well as prospective buyer traffic. The improvement shows increased confidence in home sellers and potential buyers.
February housing building permits rose 13.8% month over month, according to the U.S. Census Bureau. Housing starts rose 9.8% vs. January while housing completions surged 12.2%.
The data shows strengthening in the housing market month over month, but year-over-year numbers continue to lag.
Thursday's national 30-year mortgage rate dropped 12 basis points to 6.85% from a week ago, according to Bankrate.com.
East Coast Market Leader
Atlanta-based PulteGroup builds homes in 40 major U.S. cities. Their sales are divided between 32% first-time homebuyers, 43% move-up buyers and 25% active adult purchasers.
Brands include Pulte, Centex, Del Webb, DiVosta, American West, and John Wieland Homes and Neighborhoods.
The stock ranks third out of 22 stocks in the Building-Residential and Commercial group, which holds 22nd place of the 197 industries that IBD tracks. The CAN SLIM investing strategy looks for leadership stocks in the top 40 industries.
Housing Market: Pulte Picking Up Steam
Shares rallied nearly 2% Thursday as the 10-year yield dropped nearly 1%, helping homebuilder stocks.
PHM stock is in a seven-week long flat base with 60.99 buy point. The pattern formed from the handle of a long cup-with-handle base.
It gapped up 9.4% in heavy volume in January after reporting better-than-expected Q4 earnings and sales.
Shares hit a peak 60.89 on Feb. 2, before pulling back below the 21-day exponential moving average. The stock briefly dipped below the 50-day line as the banking crisis unfolded. PHM reclaimed the 21-day line as the market calmed amid positive housing market data on March 16.
The relative strength line hit a 52-week high as indicated by the blue dot on the weekly chart, according to MarketSmith pattern recognition.
PHM has gained 27% so far this year, outperforming the group's 18% rally. Wolfe Research just upgraded PHM to outperform from peer perform, with a 64 price target.
PHM Shows Consistent EPS And Sales Growth
Fourth-quarter earnings per share grew 45%, sliding from 48% and 59% in the prior two quarters. Sales over the same period grew 19%, from 13% and 17%. Revenue got a tailwind from 17% higher average home prices, while new orders fell 41% due to higher interest rates.
Analysts expect Pulte to post full-year 2023 earnings of $7.40 per share, after an extraordinary $10.88 profit in 2022. 2024 estimates are less bullish, at $7 per share.
Pulte has a mediocre C Accumulation/Distribution Rating, on a scale of A+ to E, with A+ being the best. The IBD proprietary rating measures whether institutions are buying (accumulating) or selling (distributing) the stock. Institutional buying tends to appear in bases before stocks break out to new highs.
Mutual funds own 56% of its shares, with 1,700 funds owning shares, down from 1,791 in September. CAN SLIM looks for increased fund ownership for conviction.
Follow Kimberley Koenig for more stock news on Twitter @IBD_KKoenig.
