Buzz Stock of the Day: Toll Brothers, Inc. (TOL)

The housing industry is a good bellwether for the economy, and the Federal Reserve knows it.

That’s probably why it reiterated its commitment to keeping interest rates at record lows, and announced plans to buy an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, bringing its total purchases of these securities to $1.25 trillion.

Analysts said the move is likely to produce an immediate drop in mortgage rates, of 0.25 to 0.5 percent percentage points. The central bank also made clear it would be able to purchase the majority of new mortgage-backed securities for at least the rest of the year, possibly longer.

“That could be very good news for us,” said Brent Anderson, vice president of investor relations for Meritage Homes Corp. (MTH), whose shares jumped 16% to $13.39. “Lower rates translate to lower payments, which are what buyers are looking for today.”

It could also be good news for our Buzz Stock of the Day, Toll Brothers, Inc. (NYSE: TOL), which is offering incentives for new homebuyers that include price discounts and below-market mortgage rates.

Last Tuesday’s report by the Commerce Department, which stated that housing starts jumped a surprising 22 percent, after three straight months of 15 percent sequential declines could also bode well forr Toll Brothers, Inc. since the company is a leading builder of multifamily starts.

Michael Rehaut of J.P. Morgan stated in a research report that February’s 22 percent jump in total starts was “entirely driven by an 82 percent rise in multifamily starts.”

Shares of Toll Brothers have been pretty resilient over the last 12 months, dropping about 16 percent, compared with competitors Hovnanian Enterprises, Inc. (NYSE: HOV) whose stock has dropped about 85 percent, and Lennar Corp. (NYSE: LEN), which is down about 41 percent.

A recent article stated that Toll Brothers, Inc. is “in better shape than most big builders trying to manage in this economic downturn.” The company’s losses are in the millions, while others have losses in the billions. “More importantly, their cash flow statement is positive in the midst of trouble.”

If you think the housing sector will grow some legs over the next 6 months, Toll Brothers, Inc. could be worth considering.

This entry was posted on Thursday, March 19th, 2009 at 4:43 pm by admin and is filed under Industrial Stocks, Materials Stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.