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Bargain Hunters Pounce on Stocks of Home Builders

August 08, 2000|Bloomberg News; Times Staff

Investors looking around for depressed potential bargains Monday all seemed to pounce on the same sector: home builders.

Stocks of most leading builders soared by double-digit percentages for the session amid surging trading volume.

Kaufman & Broad (ticker symbol: KBH) rocketed $2.63, or 13.1%, to $22.75; Centex (CTX) gained $3.44, or 13.6%, to $28.81; Toll Bros. (TOL) surged $3.19, or 12.9%, to $27.94; and Pulte (PHM) jumped $3.06, or 12.2%, to $28.19.

Analysts were at a loss to explain the sudden move, except to point to the growing sentiment on Wall Street that the Federal Reserve is finished raising interest rates to slow the economy.

That could mean that mortgage rates, too, have peaked.

After setting a record pace in 1999, new-home sales in June fell for the third straight month to the lowest level in 2 1/2 years, reflecting higher mortgage costs.

Salomon Smith Barney analyst Stephen Kim may have helped stoke the rally Monday by upgrading several builders' shares. He boosted Kaufman & Broad to "buy" from "outperform" and also upgraded Pulte, D.R. Horton (DHI, up $1.75 to $18.19) and Beazer Homes USA (BZH, up $1.69 to $24.06), among others.

The average 30-year conventional mortgage rate was 8.12% last week, down from a five-year high of 8.64% in mid-May.

Investors, Kim said, have been waiting for signs that the worst is over for mortgage rates and thus for the builders. "Nobody wants to buy these things when they can't get better," he said.

Even with Monday's rally, housing stocks are cheap compared with historical levels, some analysts argue. The group trades at 5.2 times estimated 2000 earnings per share, which is below the 5.6 times the sector traded at just before the last recession, according to Credit Suisse First Boston housing analyst Ivy Zelman.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Constructing a Rally

Shares of major home builders soared on Monday, reflecting what traders say is a growing sentiment that interest rates,

especially for mortgages, have peaked.

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Standard & Poor's index of major home builders' stocks,

monthly closes and latest

*

Monday: 150.45

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Source: Bloomberg News

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