Homebuilders constructed a strong presence on March's list of new buys by the best mutual funds, with Meritage Homes among nine stocks nailing down a spot. Fellow IBD 50 stock PulteGroup also made the grade.
Meritage Homes also earns placement on IBD Leaderboard.
As MTH stock tests a new breakout and rival PHM stock nears a buy point, other homebuilders in demand by the best funds are also setting up. M/I Homes, Tri Pointe Homes, Taylor Morrison, Toll Brothers, NVR and Green Brick Partners are all in or near a buy zone.
With so many stocks showing strength, it's not surprising that homebuilders hold the No. 2 spot among the 197 industry groups IBD tracks.
Meritage Homes, M/I Homes Lead The Homebuilders
Sporting highest-possible 99 Composite Ratings, Meritage Homes and M/I Homes tie for top billing among homebuilders.
The table below also shows how MTH stock compares to its peers in terms of institutional demand.
The Accumulation/Distribution Rating tracks buying and selling by mutual funds and other large investors over the past 13 weeks. M/I Homes leads with an A+ rating, indicating heavy buying during that period. Meritage Homes also confirms strong demand with its good but less-spectacular B- A/D rating, plus a strong 1.5 up/down volume ratio.
The up/down volume ratio covers 50 days of trading, dividing total volume on up days by total volume on down days. A number above 1.0 points to demand.
| Company | Symbol | Composite Rating | Accumulation/Distribution Rating | Up/Down Volume Ratio |
|---|---|---|---|---|
| M/I Homes | MHO | 99 | A+ | 1.7 |
| Meritage Homes | MTH | 99 | B- | 1.5 |
| PulteGroup | PHM | 98 | B- | 1.4 |
| Tri Pointe Homes | TPH | 98 | B+ | 1.6 |
| NVR | NVR | 98 | B- | 1.4 |
| Taylor Morrison | TMHC | 96 | B- | 1.4 |
| Green Brick Partners | GRBK | 96 | B+ | 1.2 |
| Toll Brothers | TOL | 94 | E | 1.2 |
| Century Communities | CCS | 94 | C+ | 0.9 |
Meritage Homes
Headquartered in Arizona, Meritage Homes was 2022's fifth-largest public homebuilder in the United States. With its distinctive style, quality construction and award-winning customer experience, the company has a focus on entry-level and first move-up buyers. Operations span Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.
The homebuilder's earnings have vaulted from $3.86 per share in 2017 to $26.74 in 2022, up 39% year over year. Cautious analysts expect profits to plummet 52% this year, to $12.97 per share, but then rebound 13% in 2024.
Boosted by a 20.5% annual pretax profit margin and a 28.4% return on equity, Meritage Homes earns an A SMR Rating. This proprietary rating tracks sales growth, profit margins and ROE — key ingredients to sustainable earnings growth.
MTH Stock Looks To Nail Down Breakout
After reaching an all-time high at the end of 2021, Meritage Homes pulled back to form a long (65-weeks) and deep (50% decline) cup with handle. But the stock has refurbished that base, finding good support along its 10-week moving average.
MTH stock is now testing a 117.32 buy point as it tries to poke its head above that entry. The relative strength line is just shy of a 52-week high, a sign of market leadership.
The rebound to a new potential breakout after a long decline shows that Meritage Homes has done the heavy lifting to work through the overhead supply.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
