Homebuilders are some of the most disliked investments in the market right now and with good reason as the housing market has had many recent stops and starts over the past few years. This indecisiveness has not bode well for share prices as of late, and some homebuilder stocks are trading at attractive valuations in a market that seems to continually be pushing new highs.

However, I am getting more optimistic about the housing market in recent months. With the decline in interest rates and yields so far this year, mortgage rates are very low by historical standards. The domestic economy is also moving along, even if not at the pace we need, should help buyer confidence. So, if you’re a value investor looking for a good stock at great price look no further.

Another enticing piece of information is household formation has been consistently higher than new home builds since the financial crisis which should trigger pent up demand once the economy emerges from its post crisis funk boosting sales for homebuilders. Even with the recent improvement, housing starts are less than half what they were before the housing market crashed. Given these recent positives, I am stepping out and adding a homebuilder to our Small Cap Gems portfolio.

Beazer Homes USA Inc. (NYSE: BZH) is a top ten homebuilder by sales and has a market capitalization right now of just under $500 million. Its enterprise value is just over $1.8 billion. The company has been around for 35 years and has built some 170,000 homes since coming public in 1994.

Beazer is well diversified builder with just over 140 active communities in over a dozen states. Most of its locations are in the Southeast and the West which continue to see faster population growth than the nation as a whole.

Growth Drivers:

Beazer posted an over $1.00 a share loss in FY2013 but is tracking towards a profit of 45 to 50 cents a share in FY2014 on approximately $1.4 billion in revenue. The consensus calls for the homebuilder to earn anywhere from a $1.00 to $1.80 a share in FY2015. I believe Beazer will come in towards the higher end of that wide range. The company recently instituted a well thought out strategic plan to grow annual revenues to $2 billion annually over the next two to three years while improving profitability.

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