by Mike Cintolo, editor Cabot Top Ten Trader
The homebuilding business is improving and
Lennar (
LEN) is leading the way higher. As such, we are selecting the firm as our latest "Editor's Choice" stock.
We've
consider the stock the top play in the homebuilding sector for a few
months now, as it recovered to multi-year highs faster than its peers.
The company is back to being one of the strongest stocks in the market
thanks to a terrific quarterly report; sales and earnings both beat
expectations, and management offered many encouraging words in its
conference call.
Notably, despite persistent worries of a new
down leg in housing prices because of huge "shadow" inventories, the
reality is that consumers are beginning to fear missing out on the
incredible affordability (low prices plus low interest rates).
In addition, inventories in many markets are extremely lean. Of course,
the top brass was careful to point out that the recovery is
regionalized, with some markets doing great and others still in the
dumps.
Still the overall trend is clear -- its up. And analysts and institutional investors are beginning to come around to that fact.
Analysts
now see Lennar's earnings totaling 87 cents per share this year and
$1.37 in 2012, and we think that could be very conservative if the
economy picks up steam and interest rates remain low. As such, we like
it.
Technically, LEN was the first homebuilder to hit multi-year
highs, and it actually trended higher into early May, even as the market
was sagging.
It eventually succumbed to the pressure of the
market, but the bigger picture shows a stock that ran from $12 to $30,
and could only pull back to $23.50 before perking up again.
More
recently, LEN burst to new highs following earnings on a big pickup n
volume; while it won't be straight up from here, it's clear that the
path of least resistance is up. We rate the stock a buy between on
weakness to the $28.50- $30.50 area.