Analysts at Goldman Sachs Group Inc. (NYSE: GS) have had a revelation. The company has added homebuilder PulteGroup, Inc. (NYSE: PHM) to its ‘Conviction Buy’ list. The only possible explanation is that the company’s shares are down so far that anything looks like up from there.

Over the past year, Pulte shares are down more than -35%, the worst in a group of six builders that includes KB Home (NYSE: KBH), Toll Brothers Inc. (NYSE: TOL), Lennar Corp. (NYSE: LEN), Hovnanian Enterprises, Inc. (NYSE: HOV), and D.R. Horton, Inc. (NYSE: DHI). Of that group only Lennar has shown a share price gain over the past year. Over the past five years, every homebuilder’s share price has fallen at least -40%, with Pulte down more than -80%.

According to MarketWatch, Goldman’s research note pointed out that Pulte is “the sole name across our universe where investors are already being paid to wait for the housing recovery.”  What the heck does that mean?

Pulte pays no dividend, special or otherwise. And analysts are expecting a loss per share in 2011 of -$0.20, substantially better than 2010’s loss of -$2.47, but still not likely to generate a dividend.

In its 2010 annual report, the company noted, “[S]ince early 2006, the homebuilding industry has been impacted by weak consumer confidence, tightened mortgage standards, a significant increase in the number of foreclosed homes, and large supplies of resale and new home inventories which have contributed to an industry-wide softening of demand for new homes. As a result of these factors, we have experienced significant decreases in our revenues and profitability. We have also incurred substantial impairments of our land and certain other assets.”

Exactly — and if anything has changed since Pulte filed its 10-K on February 10th, we haven’t noticed. New home sales are being hammered by lower-priced foreclosed houses. The median price for a new home in 2010 was $230,600. The AP reports that new homes are now priced 48% higher than prices for existing homes. The median price for an existing home was $156,100 in February, and that is about 5% lower than the median price in 2010.

New housing starts and new building permits are both lower. Part of that is seasonal, of course, but there’s little reason to believe that the spring will see a significant turnaround.  The new data seems to continue to be drifting south rather than indicative of any pending housing recovery.

The mean price target for Pulte is $8.39, with the high target at $11. The forward P/E ratio sits at 25.45, indicating that investors think something good is going to happen in the next 12 months. Any positive sign that home buying is picking up boosts the share price for Pulte and its peers. The effect is always temporary. Until unemployment falls substantially and consumer confidence rises, new home sales aren’t going anywhere. And even oracular pronouncements from Goldman about investors getting paid to wait won’t make a difference.

Pulte shares are up more than 3% in early trading, to $7.37, within a 52-week range of $6.13-$13.91. The SPDR S&P Homebuilders ETF (NYSE: XHB) is down slightly, to $17.85, in its 52-week range of $13.59-$20.00.

Paul Ausick

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