Beazer Homes USA, Inc. (BZH): If This Homebuilder Retests Recent Highs, You Could Reap 33% Returns

The U.S. housing recovery, which by some measures is about one year old, continues to build steam.

On July 24, the Commerce Department reported June sales of new U.S. homes surged to a five-year high. Sales of single-family homes rose 8.3% to a seasonally-adjusted annualized rate of 497,000 units.

This number was the best increase since May 2008 and outpaced the 482,000 units projected by economists by more than 3%. The combination of strong demand, limited supply and low mortgage rates has created a favorable outlook for homebuilding stocks.

One of the most appealing homebuilders, based on its bullish technical and fundamental outlook, is Beazer Homes USA, Inc. (NYSE:BZH).

Beazer Homes USA, Inc. (NYSE:BZH) is one of the 10 largest single-family homebuilders in America, based on the number of units closed.

The company builds in 16 U.S. states and specializes in making energy-efficient homes that target middle- and upper-class buyers.

With a growing number of middle- and upper-class citizens interested in purchasing new homes, Beazer Homes USA, Inc. (NYSE:BZH) plans to increase its average home price to $253,000 in 2013 from $225,000 last year. Management anticipates this increase will push margins to 15.6% this year from 10.5% last year.

In 2013, the company plans to spend about $550 million on purchasing and developing land, and build 170,000 new homes by 2014.

From a technical perspective, the shares are appealing.

From the October 2011 low of below $7, the stock has formed a major uptrend and gained over 150% to date. But the growth is likely not over yet.

In early 2012, the stock peaked just below $20, but retreated, finding support around $11. Throughout all of 2012 and much of the first half of 2013, the stock bounced between resistance around $20 and support around $11. This trading activity created a long-term rectangular holding pattern.

Typically, rectangles resolve in the direction they are first entered. This means Beazer Homes USA, Inc. (NYSE:BZH) should eventually break out to the upside.

In late April 2013, shortly after the stock hit a low of $13.91, shares rocketed higher, breaking above important $20 resistance and resolving the long-term consolidation pattern. Shares moved to a multi-year high of $23.29, but peaked at this level.

Over the ensuing weeks, the stock dipped several dollars, forming a minor downtrend line. New support was established near $16.48.