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January 20, 2025 (Maple Hill Syndicate) - A stock can be down but not cheap, or cheap but not down.
The stocks on my Casualty List are both. They are stocks that have been pummeled in the latest quarter, and that I think have strong rebound potential.
I'll lead of my latest Casualty List with D.R. Horton Inc. (NYSE:DHI), the largest U.S. homebuilder. Seven-percent mortgages have been poisonous to homebuilders, and Horton was down 26% in the fourth quarter in a rising market, at that.
If you had held Horton for the past ten years, you would have made 543% on your investment (as of January 17). When people got excited about the Federal Reserve easing interest rates, the stock climbed within a few pennies of $200. But now it has fallen to about $148.
Home prices are too expensive for builders' own good. The supply of home is pinched because people don't want to move and get an expensive mortgage to replace their cheap one.
Horton shares languish at about 10 times the company's per-share earnings. I consider it and many other homebuilders to be a bargain at current quotes. There's a lot of pent-up demand for single-family homes.
Nucor
Next up in the hospital ward is Nucor Corp. (NYSE:NUE), the nation's largest steel manufacturer, down 22% in the fourth quarter. Steel companies already enjoy some tariff protection from imports, and if President Trump has his way on tariffs, they will soon have more.
Nucor's sales and profits both fell sharply in 2024, as demand was weak in the automotive, housing and office-building markets. But normally, the company has done well. In the past ten years, it has averaged better than 10% sales growth per year, and earnings have outpaced sales.
Of the 14 analysts who follow Nucor, eight call it a buy, five a hold and one a sell. I find this encouraging, not because buy ratings predominate, but because opinions are split. I prefer an uncertain outlook because it means the stock has a better chance of surpassing expectations.
Huntington Ingalls
Smacked for a 28% loss in the fourth quarter, Huntington Ingalls Industries Inc. (NYSE:HII) is the largest builder of ships for the U.S. Navy, and has close to a duopoly in that business with General Dynamics Corp. (NYSE:GD).
In announcing disappointing earnings for the third quarter, Chris Kastner, the chief executive, noted that the contracts for nearly all of the ships currently under construction were negotiated prior to Covid. Since then, he said, we have seen a significant loss of shipbuilding experience in our yards.
In less than a year, the stock has fallen from $299 to about $203. I think that's overkill. The company has earned a return on equity of 20% or better (excellent, by my lights) in nine of the past 13 years.