Group of 5 Homebuilders to Report Earnings Next Week
There has been an incredible shift in consumer preferences, when it comes to living arrangements, since the health crisis hit the United States. It seems that people are looking to buy single-family homes in the suburbs en masse at this point in time. The COVID-19 pandemic is creating demand as consumers are perhaps reevaluating whether they want to live in a building with hundreds of other people.
We are also seeing companies shift their policies to allow more people to work remotely. Earlier this week Microsoft announced that it was permanently changing its policy and that many workers would be allowed to work remotely.
The shift in housing preferences has caused the homebuilding stocks to rally sharply in the last six months or so. The SPDR S&P Homebuilders ETF (XHB) has more than doubled off of its March low. The huge rally has put the fund in overbought territory and many of the stocks held by the fund are also overbought at this time.
In the week of October 19-23, five different homebuilders are expected to report earnings. Rather than using just the holdings in the SPDR Homebuiders ETF, I looked to Tickeron’s Homebuilding Industry Screener. By using this feature I was able to quickly review the fundamental and technical indicators for all five of these stocks. The companies reporting next week are Meritage Homes (MTH), M/I Homes (MHO, Patrick Industries (PATK), PulteGroup (PHM), and TRI Pointe Group (TPH).
Looking at the scorecard ratings, three of the five are rated as a “strong buy” and the other two have “buy” ratings. Four of the five have more bullish technical signals than bearish ones and three of the five have more positive than negative fundamental signals.
Pulte really stands out above the rest with four positive fundamental indicators and four bullish signals from the technical indicators. The stock doesn’t have any negative marks on either side. TRI Pointe and M/I Homes are close behind with only one negative fundamental indicator and one bearish signal from the technical indicators.
As for specific indicators where there is consensus among the group, all five have positive Outlook Ratings on the fundamental side. As for the technical indicators, there are two where all five have bullish signals—the Momentum Indicator and the MACD indicators.
The AI Trend Predictions, four of the five stocks have bullish predictions for the next week and for the next month. Patrick Industries is the only one with a bearish trend predicted and that is for the next week. The results for the next month are inconclusive.
One other area of analysis that I find useful, especially when it comes to earnings announcements, is the sentiment being displayed toward a stock before the report. If the sentiment is overly bullish, it is almost impossible for the company to issue earnings that meet expectations. Conversely, if the sentiment is extremely bearish, it is an indication that expectations are low and any positive news will be met with buying pressure. This is a contrarian line of thinking.
For these five stocks the sentiment doesn’t seem to be overly bullish in any capacity. In this case I listed the overall analysts’ ratings for each stock and I listed the short interest ratio (SIR) as well. In the case of the analyst ratings, I have grouped them as buy/hold/sell. There aren’t any sell ratings among the stocks.
The only stock that has a vast majority of buy ratings is Patrick Industries, but there are only six analysts covering the stock. I was very surprised by Pulte having more hold ratings than buy ratings. Over the years I have found the average buy percentage falls in the 65% to 75% range. This means Pulte is well below average in this area. Given the high number of hold ratings and the reluctance for analysts to issue sell ratings, having a great number of hold ratings gives us a greater chance of upgrades than downgrades.
As for the short interest ratios, the average ratio is in the 3.0 range. The reason a high short interest ratio can serve as a bullish indication is more mechanical than the analysts’ ratings. If a stock is rallying and a short seller is forced to cover their position, it adds buying pressure to a stock that is already rallying. In this case we see that Patrick Industries and TRI Pointe Group both have short interest ratios that are much higher than the average stock. If either of these companies beats its EPS estimate by a wide margin, the stock could rally sharply as short sellers try to cover.
The overall outlook for the group is pretty strong based on the fundamentals, the technical indicators, and the sentiment indicators. I would consider Pulte and TRI Pointe as the strongest two based on the overall analysis.
Momentum Indicator for XHB turns negative, indicating new downward trend
XHB saw its Momentum Indicator move below the 0 level on April 04, 2024. This is an indication that the stock could be shifting in to a new downward move. Traders may want to consider selling the stock or exploring put options. Tickeron's A.I.dvisor looked at 95 similar instances where the indicator turned negative. In of the 95 cases, the stock moved further down in the following days. The odds of a decline are at .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Moving Average Convergence Divergence Histogram (MACD) for XHB turned negative on April 02, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 47 similar instances when the indicator turned negative. In of the 47 cases the stock turned lower in the days that followed. This puts the odds of success at .
XHB moved below its 50-day moving average on April 15, 2024 date and that indicates a change from an upward trend to a downward trend.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where XHB declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
Bullish Trend Analysis
The RSI Indicator demonstrates that the ticker has stayed in the oversold zone for 1 day, which means it's wise to expect a price bounce in the near future.
The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 5 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where XHB advanced for three days, in of 349 cases, the price rose further within the following month. The odds of a continued upward trend are .
XHB may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
The Aroon Indicator entered an Uptrend today. In of 365 cases where XHB Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .
Fundamental Analysis (Ratings)
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Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
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