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Is PulteGroup Overbought After Double-Digit Gains?

PulteGroup stock price

Key Points

  • PulteGroup has been the top price performer among large and mid-cap homebuilders.
  • Market predictions of a housing crash have proven false, with builders thriving.
  • High interest rates have led to a scarcity of existing homes on the market, which is benefiting homebuilders. 
  • PulteGroup has shown robust growth in earnings and revenue over the past eight quarters.
  • Its stock pulled back with the broader market on May 19, but found support at its 10-day moving average.
  • Profit-taking after a big run-up is both normal and inevitable. 
  • 5 stocks we like better than PulteGroup.

Contrary to doom and gloom coming from some market prognosticators, residential home builders have been a highly investable industry in 2023. Recently, PulteGroup Inc. NYSE: PHM has been the best price performer among large and mid-cap homebuilders, although other strong price leaders include D.R. Horton Inc. NYSE: DHI, Lennar Corp. NYSE: LEN and Toll Brothers Inc. NYSE: TOL, in addition to numerous smaller companies.

As the price leader, with double-digit year-to-date gains, is Pulte now in an overbought zone?

To answer that, let’s look at what’s been going on with the red-hot home construction industry. 

Since the Federal Reserve began increasing interest rates in March 2022, pundits have been predicting a crash in the housing market. That hasn’t occurred. It’s true that some purchasers are putting off buys because of high interest rates, but many also realize they can refinance once rates inevitably come down. 

Homeowners Not Giving Up Cheap Mortgages

In addition, it’s recently come to light that many owners of existing homes are not selling, causing a scarcity of existing homes on the market. Because they locked in low interest rates, these homeowners understandably don’t want to sell, pay off their loans, and then take out a more expensive mortgage for their next home. For now, they’re staying put.

But a slower housing market is not anywhere close to being a crashing market. While there may be fewer existing homes on the market, builders of new homes have an advantage. 

For example, in Santa Fe, New Mexico, a fast-growing sunbelt city, Pulte is currently developing in several different areas. That’s just one of many communities around the country where Pulte has broken ground in the past two years. 

Wall Street likes what it’s seeing throughout the homebuilding industry. Far from cowering in the basement, investors have been raising the roof, sending homebuilders’ stocks to record highs.

Homebuilders' ETF In Rally Mode

The largest homebuilders’ exchange-traded fund, the iShares U.S. Home Construction ETF BATS: ITB, is up 6.83% in the past month and up 28.46% year-to-date. Its largest holdings are D.R. Horton, Lennar, NVR Inc. NYSE: NVR and PulteGroup. It also holds construction-related stocks including The Sherwin-Williams Co. NYSE: SHW, Home Depot Inc. NYSE: HD and Lowe’s Companies Inc. NYSE: LOW

Despite high interest rates, there’s no housing crash. The systemic problems of 2008 don’t exist today. 

The U.S. Census Bureau reported on May 17 that housing starts increased in April, after dipping in March, on a year-over-year basis. 

Fannie Mae Issues Upbeat Forecast

Meanwhile, Fannie Mae, a government-sponsored entity that promotes homeownership by providing liquidity to the mortgage market, offered an upbeat assessment of the housing market despite its view that the economy will slow.

So what does all this mean for shares of Pulte, which has been the top performer among large homebuilders in recent months?

PulteGroup earnings and revenue have both been growing at double-digit rates in the past eight quarters.  

The stock has posted the following gains: 

  • 1 month: 12.08%
  • 3 months: 29.48%
  • YTD: 54.43%

It doesn’t take an advanced degree in finance to understand that profit-taking, even in moderate amounts, is inevitable at some point. 

Support At 10-Day Line

The PulteGroup chart shows a pullback on May 19, with the stock easily finding support at its 10-day moving average. That shows a little bit of profit-taking, but it could also mean the stock is simply behaving in accordance with algorithms that may be driving some selling. Broad markets were also trending lower. 

But when any individual stock has notched such solid and consistent price gains, always keep in mind that it may be in overbought territory, and a pullback may be near. That’s normal, and doesn’t indicate a problem; it simply means some big investors are taking money off the table and deploying it into stocks just beginning their rallies. 

Of course, big institutional selling leads to a correction in the stock, but that also sets the scene for new buyers to come in at a lower valuation. 

Reversion To The Mean?

PulteGroup stock is currently trading 11.9% above its 50-day average. That’s a pretty high number, and indicates that a reversion to the mean could be in the cards. If you hold a stock that’s posted a fast and furious rally in recent months, you could opt to sit through a correction, if you have gains, and even add to the position as the stock finds moving-average support.

You could also take profits and look for the next potential winner with a strong combination of technicals and fundamentals.

Either way, be aware that a pullback after a big rally is both normal and inevitable, even in a top stock in a strong industry. 

Should you invest $1,000 in PulteGroup right now?

Before you consider PulteGroup, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and PulteGroup wasn't on the list.

While PulteGroup currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Kate Stalter
About The Author

Kate Stalter

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
PulteGroup (PHM)
4.7734 of 5 stars
$135.27-0.9%0.65%9.98Moderate Buy$145.00
D.R. Horton (DHI)
4.9375 of 5 stars
$168.78-0.4%0.95%11.75Moderate Buy$185.87
iShares U.S. Home Construction ETF (ITB)N/A$123.82+0.0%N/A11.56Moderate Buy$123.82
Lennar (LEN)
4.5373 of 5 stars
$174.39+0.2%1.15%11.55Hold$184.29
NVR (NVR)
3.4376 of 5 stars
$9,235.58+0.5%N/A18.88Hold$8,783.33
Home Depot (HD)
4.8828 of 5 stars
$429.13+0.5%2.10%29.15Moderate Buy$426.00
Sherwin-Williams (SHW)
4.5651 of 5 stars
$397.40+0.9%0.72%39.58Moderate Buy$396.47
Toll Brothers (TOL)
4.2488 of 5 stars
$165.17+0.3%0.56%11.38Moderate Buy$148.87
Lowe's Companies (LOW)
4.6595 of 5 stars
$272.43-0.3%1.69%22.72Moderate Buy$277.92
Compare These Stocks  Add These Stocks to My Watchlist 


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