Eisman: Best Housing Stocks to Buy in 2013

May 20th, 2013
in contributors, syndication

Money Morning Article of the Week

by Tim Melvin

This article was originally published by Money Morning, (May 17, 2013)

In New York City last week investors from around the country gathered for the Ira Sohn Conference to pitch their lists of the best stocks to buy in 2013.

One of the more interesting presentations this year featured Steve Eisman of Emrys Partners, who gave a presentation that was very bullish on the prospects for the U.S. housing market.

While many investors have proffered opinions of the strength and validity of housing market performance, investors should pay especially close attention to Eisman when he speaks on the subject.

Follow up:

Eisman has shown he knows how to evaluate and profit from this market. He successfully profited from the market top in 2007.

Eisman was featured in Michael Lewis' book on subprime mortgages, "The Big Short," as one of the investors who made huge bets against the housing market at the top of the bubble and raked in billions of profits.

Now, he's picking the bottom. If he's right again, the profits could be just as large on the upside as they were during the collapse.

In his Ira Sohn presentation, Eisman pointed out that monthly payments as a percentage of income for mortgages is at an all-time low of just 14% and inventories of available homes are at a multi-year low. He thinks the growth is just beginning, and aided by very low interest rates we could see strong growth in the industry for several years.

He listed several of the best housing stocks to buy that would allow investors to profit from this continued recovery.

He favors home builders that have substantial land inventory as we go into the recovery. Those builders who have built up their land holdings over the past couple of year should amass substantial profits form reselling land purchased on the cheap.

Here are three housing stocks to buy in 2013, according to Eisman, including what he calls the "most powerful" play in the sector this year.

Three Housing Stocks to Buy in 2013

California-based Standard Pacific Corp. (NYSE: SPF) is a homebuilding and financial services company operating in California, Florida, the Carolinas, Texas, Arizona and Colorado.

In its recent earnings report the company said it has enough inventory to meet 5.6 years of demand at the current pace. The company is seeing strong growth in both new orders and total backlog and should grow at a fairly rapid clip as its markets continue to recover.

Eisman also likes real estate developer Forestar Group Inc. (NYSE: FOR). The company currently owns 136,000 acres of real estate projects as well as substantial oil, gas and timber acreage.

Wall Street's one-year price target on Forestar is $28 - a 16% premium to where it's trading now.

But Eisman's favorite housing stock to buy, the one he called the "most powerful" play on housing, is Ocwen Financial Corp. (NYSE: OCN). Eisman said Ocwen, which trades at $44 a share now, is "completely mispriced."

The company originates and services mortgage loans both in the United States and abroad. The company's earnings have more than doubled in the past year due to acquiring Homeward Residential Holdings Inc. and mortgage lender ClearPoint.

Ocwen has more than tripled its book of mortgage servicing business - and is far from done buying. Management believes that there are still substantial opportunities in the aftermath of the mortgage crisis and plans to take advantage by growing the servicing portfolio.

Eisman believes this will allow the company to increase earnings at a rapid clip and the stock is the single most leveraged way to play the recovery.

Interestingly the day after Eisman's presentation, billionaire investor Leon Cooperman also suggested buying the stock as way to profit from an improving housing market.

For more stocks to buy in 2013 from the Ira Sohn conference, check out this look at the best investments in the energy sector to come out of last week's meeting.

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