6 developer stocks to avoid while the real estate market picks up steam



I will not urgently say that the US real estate market is on fire. This helped to attract the attention of many developers to investment objects.

But you want to understand one thing: it’s not just individuals and families who buy houses these days. There are hedge funds, alternative mutual funds, and overseas investors converting their home currency into US investments.

What’s more, electrical supplies and equipment made in China have been hard to come by since the embargo went into effect a couple of years ago. And during the pandemic, logging companies shut down and demand for lumber drove prices skyrocketing.

This was not easy for the developers and contractors, especially those with work in progress. They faced higher material prices as well as significant delays. Even if you have deals made, you cannot move on until you satisfy your investors and financiers.

These builders are not the ones you want to survive in this crazy time:

  • Landsea Homes (NASDAQ:LSEA)
  • Front door (NASDAQ:FTDR)
  • Taylor morrison homes (NYSE:TMHC)
  • Cavco Industries (NASDAQ:CVCO)
  • Inherited housing (NASDAQ:LEG)
  • Patrick Industries (NASDAQ:PATK)

Builder Stocks to Avoid: Landsea Homes (LSEA)

Subdivision Residential Area Skyline Aerial View

Source: TDKvisuals / Shutterstock.com

It might seem that building boutique houses would be a great way to play this housing boom. And that would make LSEA the perfect choice.

However, it is more difficult for smaller builders to obtain materials because they do not carry the weight and volume of larger builders. This means that a company with a market capitalization of only $ 384 million is struggling to find lumber and parts, as well as work crews.

In theory, the LSEA should be in a prime location, creating planned communities in leading US cities. But buying this property also costs a lot of money, so growth in this direction is limited. Development has slowed down. And many people are leaving the cities in which they are building these exclusive communities with the advent of work from home.

LSEA is down 22% YTD. He got an F rating in my Portfolio Grader

Front door (FTDR)

Man in suit with hands over paper cutouts of family, car and home.  Represents insurance.

Source: thodonal88 / Shutterstock.com

You may not have heard of Frontdoor, but you’ve probably seen a lot of American Home Shield ads. It is one of the home service brands owned by FTDR. He also owns the HSA, OneGuard and Landmark brands. They insure larger tickets at home to cover the cost of repairs or replacement of equipment.

Technically, this is the only company here that is not housing construction, but its services are directly related to housing construction.

The problem is that many new homes come with coatings for appliances, etc. And the barriers to entry into this market are negligible, so there are competitors.

Moreover, as long as demand exceeds supply, its growth is limited. And all of the investors’ money (as opposed to individual buyers) in homes means they don’t buy those policies.

FTDR is also expensive, but is down 2% since the beginning of the year. He got a D rating in my Portfolio Grader

Housing Developers Stocks To Avoid: Taylor Morrison Homes (TMHC)

Taylor Morrison's logo displayed in a web browser and magnified through a magnifying glass

Source: Shutterstock

There are many small to medium sized home developers and TMHC is one of them. It has a market cap of $ 3 billion and has properties in the West, Southwest and Sun Belt. And his homes are in the mid-range, making them a good place for investors to buy at such low prices.

The point is, there is nothing special about his business or his communities. Even the TMHC website doesn’t have an “About Us” section where most home builders try to stand out from the crowd.

The best you can say is the reasonable price here, but it doesn’t get too much attention. TMHK shares are down 3% since the beginning of the year. He got a D rating in my Portfolio Grader

Cavco Industries (CVCO)

picture of a forest with mountains in the distance

Source: shutterstock

CVCO, founded in 1965, specializes in modular homes. Also builds houses for parks. The latter has potential, but will not thrive until the new wave of covid-19 dies down and there is more interest in outdoor tourism in local, state and national parks.

CVCO has a long history in the entry-level housing sector as well as a nationwide sales and distribution network as well as a finance division. But investors are not buying in this sector right now.

The stock is up 22% YTD, which is a solid profit. But he doesn’t have much more room here. CVCO gets a D rating in my Portfolio Grader

Housing Developers Stocks to Avoid: Legacy Housing (LEGH)

cardboard miniature house on the table, illuminated by sunlight through the window

Source: Shutterstock

This is another modular home company that entered the market in 2005. As a Texas-based company, it specializes in the production of entry-level homes as well as tiny and oilfield homes.

Again, there is certainly a need for this housing, and there is a demand. But this is not the kind of housing where the company can expect to increase its profits. This is more about volume growth, since housing is somewhat commercialized, and the districts are not the best real estate.

LEGH shares are up 8% YTD and have a market cap of $ 400 million. This is not a bad action, but now it is not where there is a large increase in housing construction. LEGH is also affected by volatile oil markets, and recent price declines and an unstable economy bode badly for growth in those markets. He got a D rating in my Portfolio Grader

Patrick Industries (PATK)

Photo of the ocean.

Source: Manu Galdames / ShutterStock.com

During the pandemic, one of the hottest sectors was stocks, which could get people out of the market without forcing them to interact with other people. Recreational cars and boats were very popular with investors and vacationers.

But those days are in our review. PATK builds components and materials for the production of mobile homes, marine and modular housing companies. This is the company behind the housing companies under construction.

Again, builders in this sector are not the only ones to benefit the most from the housing boom. Both the wagon and the rowing arrow were a little tired too.

This does not mean PATK is doomed, it just means that there are better places for your money to grow.

PATK is up 14% YTD and is trading at a current 14x P / E ratio. Dividends are also 1.4%. The momentum is simply lost here. He got a D rating in my Portfolio Grader

At the time of publication, Louis Navelier did not have (directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Officer primarily responsible for this article has not held (directly or indirectly) any positions in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing rules

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