Buy Homebuilders’ Stocks If You Dare

Housing could do better than people think. That's all that has to happen for building stocks to climb.

Suggest -- just suggest -- that now might be a good time to buy the stocks of homebuilders, and you will almost certainly be considered out of your mind. Few sectors in recent history have fallen so far so fast, and prospects still appear dim.

To understand how terrible the business of building and selling houses in the U.S. has become, take a look at Beazer Homes USA (symbol BZH), a midsize company based in Atlanta. In 2006, Beazer was riding high, with $5.5 billion in revenues and profits approaching $400 million. Early that year, Beazer’s stock had reached $82. And then, very quickly, the bottom fell out. By 2008, sales had dropped to $2 billion; by 2009, they’d slumped to $1 billion -- a decline of 82% in only three years. On March 9, 2009, the last day of the horrific 18-month-long bear market, Beazer’s shares dropped to 25 cents.

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.