(MTH) and many of its home-building peers have had a challenging
year so far, and this is surprising with long-term interest rates
trending downward and keeping mortgages very affordable. The group
is in the bottom third of industries among the 250+ classified by
the Zacks Rank.
And Meritage was one of the weak leaders, from an earnings momentum
standpoint, right out of the gate. On January 8 when the stock was
trading $47, it slipped to Zacks #4 Rank Sell. This week, it
finally dropped to a #5 Strong Sell.
Here is the Price & Consensus chart which shows the downward
estimate revisions leading the stock lower and keeping Zacks Rank
users out of harms way for a 20%+ decline...
Housing Rebound Pauses
The housing market data this year has definitely taken on a slower
pace of growth than the strong bullish readings we saw most of last
year. And this is clearly reflected in the industry group's
They run across the spectrum of the Zacks Rank but only one of 18
stocks is a #1 Rank Strong Buy.
(TOL) sports a #2 Buy, DR Horton, Pulte, and Lennar are all #3
Holds. And Hovnanian joins Meritage as a #5 Sell.
In a recent report on housing, JPMorgan analysts explained what
must be the sentiment of many observers of the homebuilders, given
their overall poor Zacks Rank...
"While we believe only moderate upside exists in the homebuilding
sector, we see attractive relative value in the smaller-cap names.
We expect the housing market recovery to continue to unfold in
2014, but we view the larger-cap builders' valuations as less
compelling. The smaller-cap builders offer higher order growth
rates and more attractive valuations."
The truth is that for any of the builders to become a #1 or #2
Rank, their estimates would have to show a decent upward trend. The
small caps can move the needle there in JPM's view. So if you are
looking at housing stocks, keep an eye on the entire group and
compare their Zacks Rank.
The smaller names that JPM likes and might stand out if their Rank
(BZH), all #3s right now. Meritage is on their list too. But that
one has a long climb ahead right now.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
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