Wade: Homebuilder forward PEs have expanded significantly from a year ago to about 11 now for the stocks I own ... CCS, MHO, MTH, TOL, LGIH, WLH and TPH ... but that remains a deep 45% discount to the broader market forward PE of 20. They were very undervalued a year ago and aren't as cheap now but remain undervalued, imo. Homebuilders are cyclical so generally trade at a low multiple and I'd be concerned if we were nearing the peak of the housing cycle, but -
I believe homebuilding is in the middle of a long term cyclical uptrend with several years left to go. Housing starts are still way below the 2005 peak. Some of the stocks like LGIH may be overextended on a short term basis, but can be bought on pullbacks.
I don't consider a PE of 11 to be dangerous for a sector that's growing much faster than the economy and is a long way from peaking.
