John Neff’s Screen Results
John Neff, turns out, is a lot like me. Likes buying quality companies when they’re undervalued and out of favor. Makes sense to me. So he had a method/equation he used to find investable companies. If Total Return (earnings growth + dividend yield) divided by the price to earnings ratio was at least 2:1, he took interest. Using numbers provided by Simply Wall Street, here is a list of quality companies whose growth + yield are more than 2x the current P/E ratio. All are profitable and relatively stable, out of favor and relatively cheap. Obviously, do your own research. I just want to share some of the results to offer up new ideas to anyone looking to spread their wings.
Here are the results, I do own some of these FYI.
I share my portfolio, but to save anyone time, I currently own $MATX , $WIRE , $BCC , $MDC , and held $LU is the past, but it appreciated like 30% in a week immediately after I bought it (100% luck to happen that quickly), that’s a sell in my book. Gotta remember to not be greedy, pigs get slaughtered. If I can make 20%-30% in a month, I’ll take it and move on. Too many opportunities to make money to be in love with any stock.
I hope that provides some new companies for a few value investors. Enjoy!
Remember, if you like charts, you’ll hate most of these stocks😉I go against the crowds momentum, hence the success.
On a side note, $MATX & $WIRE are showing up on lots of my different quality screens. Those are the two you may want to evaluate first😉
Let me know what you like or hate, be sharing one a week for a while.
PS: I mentioned I use ZERO forward looking anything; however, to build Neff’s screen, I had to use 12 month FWD earnings estimates to estimate total return. I reduced analyst earnings estimates by 10% to increase my margin of safety further and ensure estimates were conservative. This will be the ONLY time forward looking anything will be used in a post of mine🤙
Higher Mortgage Rates is Beneficial for $ITB
  • If you are a homeowner and you are considering selling your house to downsize and you refinanced during the pandemic at 2.75% but now the rate is 4.5%, then you will likely stay put. This will slow the amount of existing home sales.
  • Existing home sales is going to go down and that puts more pressure on new home sales.
  • $ITB should benefit from this trend (I own $LEN - see graph below) but as of now, the market thinks that the other forces in play will hurt sales and profits more than it will benefit them.
  • Interactive Link to Graph -
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Homebuilders under Pressure - looking to eventually B&H
With rates rising, and the 30year mortgage rates shooting up over the past month, the homebuilders have been under pressure.

The idea is obviously that it will get too expensive for people to buy homes.

With inflation surging, people will also be pressured in terms of other expenses, i.e., most of their income will go towards basic necessities and it will be more challenging to accommodate higher mortgage payments.

Nevertheless, when I looked at the industry sometime last year, asset prices where going up not only because of the stimulus (and people having more money) but more because there was a genuine shortage of housing in the US market.

After the Great Financial Crisis in 2008, and the collapse in the US housing market, the level of investment in housing reduced significantly. It took some time for the market to recover, obviously. And that's left the market with fewer homes that required.

Demand, on the hand, has been increasing because of the increase in the Millennial population who are now becoming first time home buyers. This has been further exacerbated by:
  • Low Mortgage Costs
  • Overall increase in spending power because of savings in other areas
  • Work From Home - leading people to either buy second homes or move to the suburbs since they can work anywhere
  • The Great Resignation - People quitting their jobs and moving out of busy towns and apartment

This has pushed home prices to new highs.

For the longest time I held $NAIL, and made a decent return on it. Sold out earlier this year as it started to retreat. But, I do want to go long one of these three homebuilders (or all three) once I feel the market has settled a bit. All three have EV/EBITDA below 5x and LTM P/E multiples below 7x.

Here’s the 5-year total return for $DHI, $TOL and $LEN.
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Always love your detailed breakdowns of Macrotrends Ayesha. I know that @strategicinvestors viewed this in light of his holdings in $ITB and will enjoy reading this too.

Would it be correct to say that rising inflation makes homebuilding more expensive and that rising mortgage rates makes home owning more expensive, and thus reduces supply and demand for home building and buying at the same time?
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Alberto Wallis's avatar
$8.8m follower assets
Upcoming Earnings Calendar! (March 14th - 18th)
Earnings season is slowing down, but there are still several very interesting companies reporting next week.

  • $DLO - This company is really interesting. Growing quickly and profitably (28% net profit margin last quarter) while solving a real pain-point for companies.
  • $GTLB - Don't know much about this company, but I've seen a lot of people commenting on it lately so I'll keep an eye out.
  • $S - Extremely expensive cybersecurity stock.
  • $FDX - Not interested in investing in the business, but very interested in their outlook for the supply chain and the impact of higher energy costs.
  • $LEN - Homebuilder. Let's see what their comments are on the supply chain + demand for housing in the US.

What company are you interested in?

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.





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Key Data Points on Home Builders
I recently made the homebuilder theme my biggest investment. I'm invested in many stocks across the sector.

Yesterday, $KBH reported earnings and it appears the market reacted positively after hours. The housing market is being driven by high demand and constrained supply. Homebuilders are priced as cyclical stocks but I don't think we are anywhere close to the top of the cycle. The market is underestimating the drivers of this cycle (demographic + supply shocks). On top of that, most homebuilders have repaired their balance sheet and have much less capital tied into the land than in the previous cycle.

Data Points:
$KBH reported yesterday after the market closed.
$MTH on January 26 (after market close)
$PHM on February 1st (before market open)
$MDC on February 1st (before market open)
$DHI on February 2nd (before market open)
$TOL on February 21st (before market open)
$LEN on March 14th (before market open)*
$NVR on April 19th (before market open)

Economic Data of Interest
Jan 19th (8:30am) - Housing Starts
Jan 19th (8:30am) - Building Permits
Jan 20th (10:00am) - Existing Home Sales
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Homebuilding Industrial Complex
I'm conflicted so I would like your opinion. I'm thinking of making a big bet in the homebuilding industrial complex. $XHB $ITB and specifically on $LEN.
Happy to discuss this in the comments more.

(A) Macro Background
  • Similar to oil, we haven't invested sufficiently in our housing stock for over a decade. Prices have risen and the homebuilders are increasing their margins.
  • Inventory is super low, especially when you compare it against the US Population / single-family home inventory --> credit: Ycharts).
  • The major homebuilders have been changing their business model. Homebuilders have been using options instead of buying land outright. Using options is called controlled positions. Buying it is called "land owned". Homebuilders have been increasingly using controlled positions and decreasing land owned leading to reduced capital tied up in inventory at any given moment and higher returns on capital invested. $NVR has always used this model. $LEN has been moving closer to this. The others are going at it but at a slower pace. This will allow them to weather a downturn better, by conserving capital.
  • Valuation has come down substantially. I think the market doesn't expect margins to maintain at these levels.
  • Risks: Rise of interest rates. Historically, interest rates --> lead to higher mortgage rates --> less sales. But this time around, there is a significant amount of backlog and pent-up demand that we might not see the drop in sales.
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Regarding the risk of rising interest rates:

While interest rates are going up, it doesn’t seem like they can stay up for very long given the existing level of debt in the financial system relative to the size of the economy. Perhaps pent up housing demand will persist longer than high interest rates can.

(This might make for a great conversation on Alpha Bets by the way— would you be down for a conversation about $LEN with @pat_connolly and Ross Klein, the CIO of Changebridge Capital?)
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Upcoming Earnings Calendar! Dec. 20-25
Hey guys! Still a few notable earnings reports to close out the year! Here's what I'm interested in:

  • $MU - Comments on the strength of the memory market. Strong memory market = strong semi-market.
  • $NKE - Insights on their DTC strategy + context on their entry into the NFT world.
  • $CCL - Is the Omicron variant affecting bookings?

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

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Upcoming Earnings Calendar (Dec. 13-18)
Happy Friday everyone! Here is next week's upcoming earnings calendar. A very light earnings week. I'm mostly interested in $ADBE, $LEN and $ACN.

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

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Homebuilders are Cheap
Homebuilders have seen a boom in activity in recent years, driven by a surge in demand for housing.

Millennials are forming families, which drives this demand. They make up the largest cohort of US home buyers.

The large homebuilder's fundamentals are impressive and many companies are trading below the range when compared to similar profitability/growth companies.

Individual stocks such as $LEN (Disclosure: I'm long) look cheap on an absolute basis, and even a return to normalized housing activity levels should ensure investors enjoy a nice return.
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