Summary:I ought to buy some PHM; only, not just yet

I like everything I’ve read about Pulte Homes (PHM). Though I did not know it when I bought it, I live in a Pulte home. when I first got interested in PHM, their stock was booming. So, I kept out. In the 2004 Barron’s “Roundtable”, one participant recommend shorting PHM. Turned out he was early. When the 2005 “Roundtable” came around, the stock had not moved significantly up or down. The “guru” reiterated his short and this time it turned out to be good advice. I didn’t take the advice either time. I figured I wanted to buy PHM when it was sufficiently undervalued. Here’s a chart, from Yahoo finance.


Bill Miller and Ruane Cunniff have been buying PHM since early 2005, and it is down about 20% from their purchase price. I don’t understand their timing, except that they were buying @ around 25% off the 52-week high. Still, given that housing had only just begun to slow down they seem to have been early.

At today’s prices, PHM is extremely tempting. If it paid a higher dividend I might have bought and waited. However,

  • I’m still not convinced we’ve seen the worst of the home-sales situation. There has been a slow downward drift, but no capitulation. The financial press and its readers know that a slow-down in housing is here, but the “man on the street” does not.
  • The Fed is most likely not yet done with raising rates, so mortgage rates probably have a little rise left in them

In a recent WSJ interview, Ken Heebner (of CGM Realty) said he thought housing still had some downside to it. He said that sellers are offering incentives and are also in the stubborn stage where they are hoping to get a price for which sellers aren’t available. The next stage ought to see a capitulation in the form of significant price falls in selected markets. This, in turn, should put pressure on the new-home builders.

So, even though PHM is extremely tempting (at a PE around 5!) I am going to hold off for a little while more. If PHM ($29 today) does break out and head near $32, I might lose patience and buy it.

Update (July 22): PHM went down to $27, and it took a lot of will-power not to buy some. I’m pretty sure it’s a bargain at this price if one buys with a 5 to 10 year perspective. Problem is that housing still has not hit bottom, and I cannot believe that all the bad news is priced in … it seldom is.

Update (Aug 11): Toll Brothers has said that orders are down 47%. Meanwhile apartments are doing better than in the last few years. Forbes reports that “Through June 30, shows housing sales have fallen 8.2% to 5.81 million from 6.33 million last year.” Bottomline: The cycle unfolds predictably (in terms of direction if not size and duration).

Update: See follow-up post here.


One Response to PHM

  1. […] (DHI, PHM, TOL, CTX) Since I started looking at possibility of buying the home-builders in July 2006, they went up considerably, but have dropped back down in the first few months of 2007, so that […]

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