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Home builder inventory Dr. Horton (DHI) is the top stock to watch and the pick of the day on Monday’s IBD Screen. DHI stock is building a long cup base with a buy point of 110.55. The depth of the cup is deeper than the adapter, by 46%, perhaps in a challenging macro environment for home builders. And it’s not predicted to get any better in 2023, as rising prices slow the pace of construction and sales.
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With so many factors affecting stock performance, it’s not easy to know which ones to pick. Ideal stocks are those with strong technical levels and fundamentals. The IBD Screen of the Day identifies these top opportunity plays, based on recent price performance and relative strength across multiple metrics, such as earnings and sales growth.
Strong revenue volume sales
Fourth-quarter sales rose 19 percent to $9.6 billion, while the homebuilder’s earnings per share of $4.67 were up 26 percent. Earnings have grown in high-double digits for the past seven quarters, outpacing strong sales growth over the period. The company pays an annual dividend of 1.12%.
Its stellar performance earned the homebuilder a top EPS rating of 98. It also has a high composite rating of 98 while a relative strength rating of 93 indicates technical strength. The RS line, which compares a stock’s performance to the S&P 500, is at a 52-week high.
DR Horton builds and sells homes under a variety of brands.
“Express Homes” compete with high-end “Emerald Homes” and low-maintenance “Free Homes” at the lower end of the spectrum. The company has offices in 33 states and operates in 106 markets. It also has subsidiaries that provide mortgage financing, title and insurance services.
In December, the Fort Worth homebuilder acquired Riggins Custom Homes in Northwest Arkansas. It also bought Vidler Water Resources in May, in an all-cash deal valued at $15.75 per share.
The homebuilder’s stock offers strong ratings
The homebuilder’s stock ranks sixth in the residential and commercial building group, ranking 14th among IBD’s 197 industry groups. Other stocks in the group include: GreenBrick Partners (GRBK), KB Home (KB) and Pulte (PHM)
Mutual funds hold 58% of the stock. But institutional ownership has been declining for the past four quarters, as rising interest rates put pressure on homebuilder stocks. The exchange-traded funds iShares US Home Construction ETF ( ITB ) and the SPDR S&P Homebuilder ETF ( XHB ) own shares of the stock.
Even for the strongest members of the group with strong financials, such as DR Horton, group revenue is expected to decline.
Please follow VRamakrishnan @IBD_VRamakrishnan For more news on growth stocks.
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