The first half of 2013 was very good for homebuilder stocks. The five largest builders (by market capitalization) hit their 52-week highs before mid-May, and it has been a gradual downhill slide since then. But in the five years since the financial crisis, all have posted share price gains of at least 60%, with a couple rising much more.

The downturn since May has been virtually all attributed to rising interest rates and tougher lending requirements. The rise in interest rates has had an effect, but probably less than generally attributed to it. Even at around 4.5% for a 30-year fixed rate mortgage loan, the cost of money is at historic lows. Lending requirements have gotten stricter and some homebuilders have laid some blame for the slowdown in new home sales on that as well.

Builders have been acquiring land again, and some of the largest own tens of thousands of building sites. The expectation for next year is that the Obama administration is likely to proposed looser lending standards for the Federal Housing Authority (FHA) and the Department of Housing and Urban Development (HUD) as a way to boost housing demand and increase U.S. economic activity. The president does not need congressional approval to change FHA and HUD lending standards, and the administration could implement new rules in time to have a positive impact on new home demand in the first half of 2014.

PulteGroup Inc. (NYSE: PHM), with a market cap of about $7.1 billion, is the largest of the homebuilders. At the end of September, PulteGroup controlled more than 126,000 building lots, a 5.5% increase from the beginning of 2013. Shares are up 13% in the past 12 months and closed at $18.43 on Tuesday, in a 52-week range of $14.23 to $24.47. The earnings per share (EPS) estimate for next year is $1.16, and the forward multiple is 15.9. The consensus price target on the stock from Thomson Reuters is around $20, yielding a potential upside to Tuesday’s closing price of around 8.1%.

Lennar Corp. (NYSE: LEN) owned and controlled more than 136,000 building sites at the end of August, and it is the second-largest homebuilder in our review, with a market cap of $6.99 billion. Shares closed at $35.75 on Tuesday, in a 52-week range of $30.90 to $44.40. Lennar’s share price is down about 2% over the past year, and its price target is $40.90, for an implied gain of 13.9%. The consensus EPS for the stock is $2.43 for 2014, and the forward multiple is 14.65.

D.R. Horton Inc. (NYSE: DHI) shares closed at $19.53 Tuesday, in a 52-week range of $17.52 to $27.75. The company’s market cap is $6.36 billion, and at the end of its most recent fiscal year ended in September, the company owned and controlled almost 181,000 building lots, a rise of 18.5% year-over-year. The consensus EPS estimate for fiscal 2015 is $1.93, and the forward multiple is about 10.1. The price target on the stock is about $23.80, and the potential upside on the shares is 19%.

Toll Brothers Inc. (NYSE: TOL) has a market cap of around $5.68 billion and controlled 48,600 home sites at the end of its fiscal year in October, up 20% year-over-year. The company builds high-end homes and reported lower profits Tuesday morning but beat revenue estimates. The company’s average selling price in the fourth fiscal quarter was $703,000, up from $582,000 in the same period last year. Shares closed down slightly at $33.34, in a 52-week range of $29.64 to $39.25. The price target on the stock is around $36.90, and the potential upside to Tuesday’s closing price is 10.5%. The consensus 2014 EPS estimate is $1.51, and the forward multiple is 14.8.

NVR Corp. (NYSE: NVR) controlled about 56,000 building lots at the end of September, about 5.3% above the company’s total at the end of September 2012. NVR’s market cap is $4.41 billion, and the stock closed Tuesday at $969.00 in a 52-week range of $830 to $1,100. The consensus price target on the stock is around $950, indicating that shares may be overbought. The estimate for 2014 EPS is $64.42, and the company’s forward multiple is 15.

The best choice among these builders is D.R. Horton, with an implied gain of 19%. The consensus EPS forecast for the 2014 fiscal year has been lowered, as have revenue estimates, but the company’s massive land bank can be used to provide some revenue assistance if building lags. Horton also appears to be undervalued, compared with the other homebuilders, at just 10 times forward earnings.

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