Two stocks for traders seeking capital gains
After previously making good calls on this sector, analyst Rodney Hobson updates his view on these stocks which he had correctly predicted would fall. He thinks the next move is likely upwards.
19th March 2025 08:38
by Rodney Hobson from interactive investor
American housing stocks have suffered amid the political uncertainty that followed President Donald Trump’s inauguration. They look to have fallen far enough and could be due for a rebound, especially if this week’s better news on inflation is followed by another cut in US interest rates.
Let us be realistic. There are always uncertainties – investing would not provide opportunities if we all knew what was coming tomorrow – and there are more challenges than usual at the moment.
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A tariff war will almost certainly hurt rather than help American would-be homeownersand could well spark inflation that would delay or even reverse the downward trend in interest rates for new mortgages, despite Trump’s pressure on the rate-setting Federal Reserve Bank. Nor will wide-ranging sackings of federal employees do any favours for the US jobs market.
However, the American economy has held up pretty well since the pandemic and continues to perform better than other major economies, including China which is now resorting to the sort of stimulus measures that are not needed in Washington.
That should be of considerable comfort to shareholders in US housebuilders, despite a tailing off of house sales over the past few months, but an additional complication for investors is that, in such a large country, even the biggest operators work on a regional rather than a national basis and can be affected by regional as opposed to national factors.
D.R. Horton Inc (NYSE:DHI) is the largest housebuilder in the United States with markets across 36 states, so it is reasonably protected against a downturn in just one part of the US. Its shares hit $197 last September but are now down to $128, where the price/earnings (PE) ratio is derisory at only 9. Unfortunately for income seekers, the yield is still only 1.1%.
Source: interactive investor. Past performance is not a guide to future performance.
KB Home (NYSE:KBH), which operates on the West Coast and through southern states, is probably quite insulated from possible downturns in the manufacturing belt. Its shares have followed a similar trajectory to Horton’s, peaking at $90 but now down to $60. The PE is even lower than Horton’s at 7.2 but the yield is somewhat better at 1.6%.
Source: interactive investor. Past performance is not a guide to future performance.
Hobson’s choice: Anyone who bought DR Horton on my original tip at $71.50 three years ago has been consistently ahead, and my suggestion to take profits above $160 two years later is also looking good. My last comment in December at $167 was to hold off buying. This is still not a share for income seekers but traders looking for capital gains could certainly consider buying at the current price. The next move is likely to be upwards.
I have been less keen on KB in the past, but it too seems to be bottoming out so now merits a buy rating.
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Update: The metaphorical ink had scarcely dried on last week’s column when German sportswear group Puma SE (XETRA:PUM) revealed weaker sales than expected so far this year, blaming a “soft performance” in the US and China. Given that those two countries are the biggest economies in the world, that is particularly bad news.
Puma blames geopolitical tensions and trade disputes, two factors that may well get worse rather than better. So sales growth this year will be in single digits, and low to middle percent at that. Profits will be below €600 million (£504 million) compared with €622 million last year and a good €100 million less than analysts had hoped.
Of equal concern is Puma’s own failure to capitalize on the craze for retro trainers that has boosted rival adidas AG (XETRA:ADS). It has belated high hopes for its Speedcat range this summer but is playing catch-up rather than setting the pace. Such is the world of fashion, the new line may well arrive just in time to see tastes move on to some other must-have fad.
The warning prompted an initial 23% fall in the share price. Mercifully, I said last week that the shares were no more than a hold. It is a bit too late to advise shareholders to get out, but other investors should stay well clear.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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