Homebuilding stocks are still solid plays in spite of their gains over the past year. Simply put, America will need to build more homes to meet the needs of the Millennial generation.

While there were concerns that rising costs would impede the housing market, so far homebuilders have been able to pass on higher costs to customers.

Let’s take a quick look at two of the top stocks in the homebuilding industry: D.R. Horton (DHI) and Lennar Corporation (LEN).
 
D.R. Horton (DHI)

DHI is one of the country’s top homebuilders. DHI mainly builds and sells single-family homes in the move-up and entry-level markets. DHI builds homes in more than 90 markets spanning nearly 30 states throughout every region of the country.

DHI has a low forward P/E ratio of 8.44. In other words, there is a good argument to be made that DHI is undervalued at its current price of $88.25. DHI also has a moderate beta of 1.65, indicating it probably won’t be a boom or bust stock moving forward.

DHI has a C grade in the POWR Ratings. This means the stock is a Hold. DHI has a Sentiment grade of B along with Cs in the Quality, Momentum, and Value components. You can learn more about how DHI grades out in the Growth and Stability components by clicking here.

DHI is ranked 15th out of 25 stocks in the Homebuilders category. Click here to learn more about the Homebuilders industry. As a whole, the Homebuilders segment has a B POWR Rating grade.

DHI will move even higher if the analysts are right. The top analysts have established an average price target of $108.50 for the stock, meaning it is likely to increase by 23%. The highest analyst target price for the stock is $124 while the lowest is $89. The analysts’ average price target for the stock has increased $19 across the prior 147 days. The stock’s average upside potential in the past year has been 14%. Of the 20 analysts who have issued DHI recommendations, five consider it a Strong Buy, 11 consider it a Buy and four consider it a Hold.

Lennar Corporation (LEN)

LEN has been in business going all the way back to the early 1950s. This homebuilder also makes money through financial services. However, the majority of the company’s revenue stems from homebuilding.

LEN has a forward P/E ratio of 7.90, meaning the stock might be undervalued at its current price of $92. LEN has a beta of 1.49 so it is unlikely to significantly fluctuate even if the market gets rocky. LEN is currently trading around $18 below its 52-week high of $110.61. The stock’s 52-week low is $57.13.

LEN has a B POWR Rating grade meaning it is a Buy. The stock has a B Sentiment grade along with Cs in the Growth, Stability, and Value components. If you would like to learn how LEN fares in the Momentum and Quality components, you can do so by clicking here.

Of the 25 stocks in the Homebuilders segment, LEN is ranked 5th. You can learn more about the stocks in this space by clicking here.

The analysts are bullish on LEN, setting an average target price of $109.50 for the stock. If LEN hits this price target, it will have popped by nearly 19%. The highest target price for the stock is $120 while the lowest is $97. Across the prior 85 days, LEN’s average analyst price target has increased by $4.32. Exactly 17 analysts have issued recommendations for LEN with four viewing the stock as a Strong Buy, five considering it to be a Buy and eight viewing it as a Hold.

Which is the Better Buy?

LEN is the better of these two homebuilder stocks. LEN has a superior POWR Rating grade. You can feel confident buying LEN at or near its current price. However, you might want to wait for DHI to improve in the POWR Ratings or decrease in price before establishing a position in that homebuilder stock.