Zillow Inc (Z), Trulia Inc (TRLA) – The Housing Recovery: Two to Buy

And while peer high-end homebuilder Toll Brothers is well positioned to grow, its forward PE of 43 means new investors are paying for a lot of forward profits. PulteGroup, on the other hand, carries a forward PE of below 13, while Meritage Homes Corp (NYSE:MTH)’s forward PE is right at 20. The key difference? Being the smallest of the three, with annual sales of $1.5 billion, to more than $2.1 billion for Toll Brothers, and $5.3 billion for PulteGroup, gives Meritage Homes Corp (NYSE:MTH) a much longer runway for growth.

Much of the volatility this year has been driven by concerns over interest rates. Let’s be realistic: Historically speaking, rates could go up 70% before approaching the average rate over the past four decades. The numbers that matter? Improving employment statistics, and a recovering economy. It’s not a pretty recovery, but it’s a recovery nonetheless.

Foolish final thoughts

This housing recovery looks very real, and the underlying data supports it continuing. Don’t let hindsight bias — looking in the rear view mirror at the recent housing bubble — cause you to overlook a solid opportunity to profit. Zillow and Meritage Homes Corp (NYSE:MTH) are both smaller players in their respective segments of the housing market, and while they aren’t cheap, the opportunity for growth positions them as great long-term bets. As to Trulia Inc (NYSE:TRLA), it very well could turn into a solid investment. But the Foolish approach is to bet on the first mover that’s already profitable, and let the market develop. If there’s as much opportunity as we hope, you’ll have plenty of time to invest in Trulia once it’s earned our trust.

The article The Housing Recovery: 2 to Buy originally appeared on Fool.com and is written by Jason Hall.

Jason Hall owns shares of Zillow and Meritage Homes. The Motley Fool recommends Meritage Homes and Zillow. The Motley Fool owns shares of Zillow. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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