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What to Do if You Still Own PulteGroup Stock

A year ago, I recommended four homebuilder stocks. PulteGroup stock has been the best performer of the bunch, up 84%. But here’s why I sold it.

A year ago on December 23, I recommended four homebuilder stocks here in Wall Street’s Best Daily, citing their attractive earnings growth and low valuations.

Prospects for increasing employment and wages under the new political administration also served to enhance new home purchases.

Those four stocks have since delivered incredible capital gains, with D.R. Horton (DHI) up 84%, M.D.C. Holdings (MDC) up 25%, PulteGroup stock up 84% and Toll Brothers (TOL) up 50%—in addition to any dividends that they paid.

Many of them also landed in my Cabot Undervalued Stocks Advisor portfolios, where subscribing investors were able to take advantage of my weekly blow-by-blow comments on company news, earnings outlooks, valuations and price activity.

My investment strategy has strict earnings per share (EPS) growth requirements. In early 2017, it became clear that prospects for strong 2017 earnings growth at D.R. Horton (DHI) and Toll Brothers (TOL) would give way to single-digit EPS growth in 2018. Therefore, I sold DHI and TOL in early 2017, and recommended that investors buy PulteGroup (PHM), which had incredible EPS growth prospects in both years.

That recommendation also appeared right here in Wall Street’s Best Daily in late February.

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At that time I wrote:

“PHM has repeatedly risen to upside resistance in the 22 to 23 area for four years. Based on its trading pattern in recent weeks, combined with the bullish price charts on other homebuilder stocks, I believe that PHM is finally ready to break past price resistance and begin a sustainable run-up. Nobody has missed their opportunity to make money in PHM!”

Sure enough, PHM rose above 23 in early March, and ran as high as 34 this week!

Why I Sold PulteGroup Stock

All of those trades proved quite profitable throughout 2017. Then, in November, after watching PulteGroup stock rise relentlessly without resting, I judged that the stock was overextended and seriously due for a pullback so I sold the stock from Cabot Undervalued Stocks Advisor Growth Portfolio. PHM stock had delivered a 51% total return since my February recommendation. Nice!

As the Chief Analyst of Cabot Undervalued Stocks Advisor, I give my subscribers very specific investment strategy and fresh investment ideas, with specific buy, hold and sell recommendations, including the recommendation to sell PHM in November.

Now, I’m no longer invested in homebuilder stocks. Compelling investment opportunities come and go, and last year’s obvious growth and value scenario in the homebuilder industry has since faded.

However, I know that the trading activity of most investors is going to differ from my strategy. You might hold your stocks for any timeframe between a few hours and many years.

So while my Cabot Undervalued Stocks Advisor subscribers sold PHM in November, you might still own the stock!

If you still own PulteGroup stock, here’s what you need to know.

What You Should Do with PHM

First of all, Pulte’s earnings outlook still looks far more attractive than its peers. Wall Street’s consensus estimates point toward 37.1% EPS growth in 2018. The corresponding price/earnings ratio (P/E) is just 12.1, indicating that the stock remains undervalued. PHM also has a dividend yield of 1.1%.

I only sold PHM because it was completely unreasonable to expect the run-up to continue without the stock first pulling back and resting. If you still own PHM, you should consider whether you’d be happy to own it if the share price came down and didn’t begin rising again for six months.

If your answer is “yes,” you own shares of a thriving company, and you’ll probably make more money in the coming years.

If your answer is “no,” then I recommend that you either sell PulteGroup stock or use a stop-loss order so that when the pullback arrives, you don’t “go down with the ship.”

To get the list of stocks to replace PulteGroup with, take a subscription to Cabot Undervalued Stocks Advisor here today.

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Crista Huff is the lead analyst of Cabot Undervalued Stocks Advisor, where she combines a strict fundamental methodology with technical analysis, to identify growth and value stocks whose charts are turning bullish.