Buying What's Out of Favor: D.R. Horton and KB Home

Nobody likes the Home builder stocks, they are sitting at all-time lows, but today they are all having a good day thanks to Q2 earnings season kicking off on a positive note.  Should the recovery continue, the Street can't ignore how ugly things may be for these stocks, which is why its time to revisit D.R. Horton Inc (NYSE:DHI) and KB Home (NYSE:KBH).

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D.R. Horton shares are on the mend more so than KB Home but both have recovered since hitting record lows.  D.R. Horton Inc 's (DHI) shares have moved up 20.23% from its 52-week low and KB Home 's (KBH) shares are up 9.95% from its recent bottom.

Over the past 12 months D.R. Horton Inc (DHI) shares have traded between $8.28 and its 52-week high of $15.44.  D.R. Horton Inc shares are now trading with a P/E Ratio of 0 and EPS of -0.59.

KB Home (KBH) shares have a 12 month range of $10.23 to its high of $20.70.  KB Home shares are now trading with a P/E Ratio of 0 and EPS of -0.67.

(TradingMarkets.com) D.R. Horton Inc generated $207.8 million of cash flow from operations during its 2010 second quarter, which included $352.5 million of tax refunds received during the quarter. On an LTM basis, cash flow from operations was $590.4 million, including $465.4 million of tax refunds. For all of fiscal 2010, Fitch expects DHI to be cash flow positive, excluding the tax refunds. The company has a $100 million authorization under a share repurchase program that expires on Nov. 30. DHI has not repurchased any of its stock since fiscal 2006.

Housing apparently bottomed during 2009, and a so far anemic recovery has begun. During the next 12-15 months off the bottom, the recovery may appear jaw-toothed as substantial foreclosures now in the pipeline present as distressed sales and as meaningful new foreclosures arise from Alt-A and option ARM resets. High unemployment rates and the tightening of certain Federal Housing Administration loan standards will be notable headwinds early in the up-cycle. The continuation and expansion of the scope of the national housing credit boosted sales in spring of this year, pulling demand forward from future months. And the federal government's continuing efforts to modify foreclosures may finally show some success in 2010.

KBH and DHI have finally shown some support and traders have taken notice, once the analysts get on board these stocks could really jump.