It’s four in a row in second place for Michael Rehaut. The J.P. Morgan researcher, who actively tracks 26 companies, has a positive long-term view of homebuilders thanks to strong supply and demand fundamentals. But he remains selective. In August 2012, Rehaut upgraded PulteGroup from neutral to overweight, at $12.09, on valuation. By late April shares of the Bloomfield Hills, Michigan–based builder had jumped 75.4 percent, to $21.21, pacing the sector by 29.3 percentage points. Rehaut then lowered them back to neutral, predicting a decline in order growth and revenue. Sure enough, in July the company reported a 12.4 percent year-over-year quarterly net decline in new orders, at 4,885 homes, though revenue delivered a 20 percent gain, to $1.2 billion. And through August the stock retreated 27.4 percent, to $15.39. In January the analyst launched coverage of Lancaster, Pennsylvania–based Armstrong World Industries with an underweight rating, at $54.52, in part because it is less exposed to U.S. residential construction than its peers. By the end of August, shares of the manufacturer of floor coverings, ceilings and adhesives had fallen 10.9 percent, to $48.56, and trailed the sector by 19 percentage points. “Michael’s valuation work is finely tuned and invariably the most accurate of the group,” asserts one loyalist. — Ben Mattlin |
The 2013 All-America Research Team: Homebuilders & Building Products, No. 2: Michael Rehaut