Fed, Wall Street Euphoria Mean More Good News for Small Cap Housing Stocks

The euphoria on Wall Street touched off Sept. 13 by the Federal Reserve lifted many stocks in many industries, including the small cap home builder stocks we have been following in recent weeks.  The Fed announced it would buy $40 million of mortgage-based securities a month and renewed its pledge to keep interest rates at their current historic lows until at least the middle of 2015.

The Wall Street Journal quoted Todd Abraham, co-head of government and mortgage bonds at Federated Investors in

Photo courtesy of axiahomeloans.com

Pittsburgh, who called it “‘unprecedented support’ of the mortgage market even if there are doubts as to how much it can affect the housing market.” He noted that the Fed’s move caused mortgage-backed securities to soar to their best day in four years.

The six small cap home builders we last covered Aug. 31 all enjoyed a nice bounce on Sept. 13 and then followed up with more gains Sept. 14. While certainly not a scientific survey or an in-depth analysis, or even any indication these stocks could go up further, but it appears that investors found the Fed’s move, perhaps coupled with the recent uptick in housing, enough reason to buy these small caps, all of which have been beaten down in recent years.

The six stocks include:

Red Bank, NJ-based Hovnanian Enterprises (NYSE: HOV, http://www.khov.com/) specializes in single-family detached homes, condominiums and town homes and operates in two segments: homebuilding and financial services.  The company’s stock was trading for as low as $0.89 last October. It closed Aug. 31 at  $2.92,  increasing its market cap to more than $370 million. At the close of market Sept. 14, HOV was trading for $3.89, causing its market cap to jump to $515 million.

Los Angeles-based KB Home (NYSE: KBH, http://www.kbhome.com/) is a home building and financial services company catering in large part to first time buyers. KB is an old Southern California home builder, founded in 1957 and formerly called Kaufman and Broad. Back in early July it was trading for $9.74. It closed Aug. 31 at $11.04, increasing its market cap to $851 million. It closed Sept. 14 at $13.65, up 74 cents for the day. Its market cap is now $1.05 billion.

Columbus, OH-based M/I Homes Inc. (NYSE: MHO, http://www.mihomes.com/) builds single family homes primarily in the Midwest, Mid-Atlantic and southern parts of the U.S. The  company was founded in 1973 and, like most of the other builders, has homebuilding and financial services divisions. Back in early July it was trading for $17.50. It closed Aug. 31 at $19.30. It closed Sept. 14 at $20.77, bumping its market cap up to $379 million.

Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/) builds and sells single-family and multiple-family homes in 16 states in the U.S. It also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. Back in early July its market cap was about $283 million and it was trading for $2.86. It closed Aug. 31 at $2.94. By the end of the day Sept. 14 BZH was trading for $3.77, up 26 cents on the day, increasing its market cap to $464 million.

Irvine, CA-based Standard Pacific (NYSE: SPF, http://www.standardpacifichomes.com/) builds single family and detached homes and targets a wide range of homebuyers. It also provides mortage financing services through its mortage finance subsidiary, Standard Pacific Mortgage. It closed Aug. 31 at $6.70 with a market cap of $1.34 billion. SPF closed Sept. 14 at $7.46, up 19 cents for the day and setting a new 52-week high. Its market cap is now $1.49 billion.

Westlake Village, CA-based The Ryland Group (NYSE: RYL, http://www.ryland.com/) is a homebuilder and mortage finance company. RYL covers many aspects of the home buying process including design, construction, title insurance and escrow. It closed Aug. 31 at $26.81 with a market cap of $1.21 billion. RYL closed Sept. 14 at $31.52, also setting a new 52-week high. Its market cap grew to $1.41 billion.

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