Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

KB Home (KBH), The Ryland Group, Inc. (RYL), PulteGroup, Inc. (PHM): Explosive Gains in the New Building Boom

Housing is coming back in a big way! Residential builders have been off the radar for most people as potential investments for the last five years. Since bottoming in September 2011, the stocks and prospects for residential construction firms have been on a steady rise. These businesses currently offer an excellent opportunity to investors who act now to receive exceptional returns for the next three to five years as this already established trend runs its course.

A speculative opportunity inside a strong trend

KB Home (NYSE:KBH) is a business that was truly decimated with the collapse of the housing industry and is still experiencing its share of negative headwinds. It is diligently working to implement a plan designed to alleviate many of the issues facing its operations and is planning to issue new stock to raise capital and reduce debt. The market has reacted positively to the actions taken by the company and the share price has been moving up.

Some of the major issues facing the business are slow projected growth in five-year forward earnings of only 4%, a very heavy debt-to-equity ratio of 4.15 and a PEG ratio of almost 5. If the turnaround plan being implemented is successful, the stock could soar. For those with the willingness and ability to perform deep due diligence and accurately assess the prospects for the KB Home (NYSE:KBH) turnaround plan’s success, the opportunities for profit are enormous. For those lacking the time or ability to perform this evaluation, the risk of investing would be enormous. Unless an investor possesses the special skills needed, this is a good stock to avoid until more of the story unfolds.

Two household names for building households

The Ryland Group, Inc. (NYSE:RYL) and PulteGroup, Inc. (NYSE:PHM) are literally household names in the homebuilding industry and, in many ways, their market values put them in close proximity to each other. Both businesses have current P/E ratios over 35 but forward ratios around 14 to 15. They also have projected five-year earnings growth rates of 10%, price-to-book multiples around 3.65 and are priced at about 33 times cash flow.

PulteGroup, Inc.

While the price-to-cash-flow ratio of these businesses is only around 3.3%, both of these businesses are well positioned to see rising share prices as the momentum in this cyclical market continues to build and garner more media attention. Of the two, The Ryland Group, Inc. (NYSE:RYL) may have better prospects for investment performance over the near term as analysts’ earnings expectations for 2014 have risen about 20% in the last 90 days, while the 2014 expectations for PulteGroup, Inc. (NYSE:PHM) have fallen by about 3.6% over the same period.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.