FOR - Forestar Group - US Housing Market Stocks Analysis

Companies / US Housing Mar 21, 2023 - 02:42 AM GMT

US House Prices Current State

My interim view as of early July 2022 based mainly on my stock market, economy and UK housing market analysis at the time (Stocks Bear Market Rally Last Gasp Before Earnings Season, US House Prices 3 Year Probability Range) concluded in an rough expectation for US house prices to target a gain of between 20% and 30% over the next 3 years that would be punctuated by a correction during 2023.

The latest Case Shiller 10 city index for November 2022 is 313, down form a peak of 330 in June 2022 (remember there is a 2 month lag in reporting of data). Thus US house prices have corrected by 5% from their highs though still positive on an 12 month basis at +6.3% which isn't anywhere near the shrill cries of the doom merchants such as Michael Burry of Mid 2022.

And given the background of soaring mortgage interest rates and contracting corporate earnings coupled with the inflationary cost of living crisis then +6.4% over the past 12 months is a sign of relative strength that suggests that yes US house prices whilst weak during 2023 are not going to fall off a cliff as many prospective buyers hope they will, after all the so called recession saw the US economy add 517,000 jobs last month, more than double market expectations! Thus the correction looks set to mild and prove temporary with prices set to resume their bull and likely to trade at new all time highs during 2024.

US Housing Stocks Mini Portfolio

Where housing stocks are concerned the more bad news the better which is the mistake most investors make when seeking good news to buy, countless times I get asked why am I buying x,y,z, stock when the news is so bad! We'll how else do you think you are going to get the stocks to trade down to a cheap prices? Not when the news is GOOD! You want the news to be BAD, DIRE, disastrous even because that is when one gets the greatest buying opps! It's why during October I looked like a porcupine given all the falling knives that I had tried to catch, which included a few US housing stocks though to very limited extent, pinprick exposures so as to get give me some skin in the game towards focusing on the US housing market.

FOR - Forestar Group

Missed the boat with DR Horton well in steps Forestar a majority owned subsidiary of DR Horton. Why buy DR Horton near it's highs when one can buy Forestar near its lows! In fact the stocks fundamentals are marginally better than that for DR Horton. So whilst a downturn in the US housing market will hurt both stocks, Forestar trades on a PE of 4.8 vs DR Horton on 6.1.

The stock trades in a easily defined range of $23 to $10. So accumulate below $11 with a view to selling above $22 for X2, whilst leaving a little on the table in case it blasts off, given it's low market cap of $765mln and low PE .Going into the low this was an easy stock to accumulate into which was followed by a 70% advance currently parking the stock at 38% of it's range. Forestar is now correcting which should see it trade down to at least $14.5, below that would be a lower probability trend towards $13.5, and I don't think we have much of a chance of seeing the stock go below that, not in this cycle. I aim to accumulate in the $14.8 to $13.5 range as the stock has put in it's bear market bottom and is now consolidating it's 70% advance in preparations for the next leg higher. So it's a case of asking oneself does one want to hitch a ride from about $14.5 to $23 for a potential 70% or not?

So those are the four US housing market stocks that I am accumulating and I am on the hunt for a UK property fund trading at an opportune level so watch this space!

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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