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Home Builders Riding Wave of Positive Data

Tickers in this article: KBH PHM MTH LEN DHI BZH SPF
NEW YORK ( TheStreet) -- Positive economic data for the U.S. housing sector and brighter signals from Europe offered markets a glimmer of hope this Tuesday. The U.S. Commerce Department released better-than-expected November housing data with builders breaking ground for nearly 685,000 homes, up 9.3% from October and 24.3% in November 2010, surpassing economists' expectations. Building permits were up 5.7% from the previous month.

At close Tuesday, the S&P 500 Index (SPXINDEX) gained 2.98%, while the S&P 500 Home Building Sub-Industry Index (S5HOME INDEX) edged forward by 7.01%, beating the main index. Stocks like, PulteGroup(PHM) , KB Home (KBH) and Meritage Homes (MTH) advanced 10.4, 10.1% and 9.2%, respectively, in a single-day trade Tuesday.

The Architecture Billings Index rose to 52 in November from 49.4 in October, according to the American Institute of Architect. The National Association of Home Builders expects sentiment to buoy for the third straight month in December.

Based on average estimates of analysts surveyed by Bloomberg, these stocks have upsides ranging from 5% to 40%. The buy recommendation and hold guidance for these stocks is 62% and 30%, respectively.

The stocks are listed in ascending order of upside potential.

5. D.R. Horton (DHI) is one of the largest homebuilders in the U.S. The company closed 16,695 homes for the year ended Sept. 30, 2011. Operating in 73 markets across 25 states in the East, Midwest, Southeast, South Central, Southwest and Western regions of the U.S., the company engages in the construction and sale of luxury homes. It also provides mortgage financing and title services for homebuyers through its mortgage and title subsidiaries.

The stock rose 5.7% in a single-day trade this past Tuesday closing at $12.43. On Dec. 20, Guggenheim Securities reaffirmed the stock's price target of $13, implying an upside of 4.6% from current levels. Of the 23 analysts covering the stock, 52% recommend a buy and 39% rate a hold, as per a consensus forecast of analysts polled by Bloomberg.

For the fourth quarter of 2011, DHI reported net income of $35.7 million, or 11 cents per diluted share, from negative earnings of $8.9 million in the same quarter prior year. Revenue from home sales was reported at $1.07 billion, an increase of 16% compared to $921 million from the year-earlier quarter.

Homes closed in the quarter totaled 4,987, compared to 4,281 in the same quarter of fiscal 2010. Net sale orders for the quarter totaled 4,241 homes worth $927.6 million, compared to 3,979 homes worth $817.5 million in the same quarter last year.

For the fiscal year ended Sept. 2011, the company reported net income of $71.8 million, or 23 cents per diluted share. Home building revenue for the fiscal was $3.5 billion and homes closed totaled 16,695 homes. Net sale orders for the year were 17,421 homes worth $3.7 billion. The company's order backlog of homes under contract as of Sept. 30 was 4,854 homes valued $1 billion, compared to 4,128 homes or $850.8 million for the same period preceding year.