Stock Analysis & Ideas

RDFN, PHM, TOL: What’s Behind the Recovery in Real Estate Stocks?

Story Highlights

Real estate-related stocks showed an improvement following the release of CPI data. Easing inflation could lead to a slowdown in interest rate hikes, supporting the housing market.

Real estate-related stocks like Redfin (NASDAQ:RDFN), Toll Brothers (NYSE:TOL), and PulteGroup (NYSE:PHM) witnessed a recovery following the release of inflation data. (See the graph below.)

The higher interest rate environment is negatively impacting home buying demand and taking a toll on these companies’ financials and stock prices. However, the U.S. inflation rate continued to ease in October (rising 7.7% compared to an increase of 9.1% in June), signaling that the Fed could increase interest rates at a slower pace. 

This gave investors an opportunity to purchase these beaten-down stocks at a discount and profit from the price recovery. 

However, these stocks soon reversed some gains as existing home sales data remained a drag. Per the National Association of Realtors data, existing-home sales dropped for the ninth month in a row. Sales fell by 5.9% month-over-month in October. Moreover, it decreased by 28.4% year-over-year. 

The National Association of Realtors’ chief economist, Lawrence Yun, said higher mortgage rates impacted demand in October. However, Yun signaled that mortgage rates decreased after peaking in mid-November. This indicates that home sales could be reaching the bottom.

Against this background, should investors be buying these beaten-down stocks? Let’s find answers using TipRanks’ database. 

Is Redfin Stock a Buy? 

While Redfin stock recovered a bit, it sports a Hold consensus rating on TipRanks based on one Buy, nine Hold, and three Sell recommendations. Meanwhile, analysts’ average price target of $5.83 implies 14.5% upside potential. 

Our data shows that hedge funds capitalized on the slump in RDFN stock. Hedge funds bought 317.7K RDFN stock last quarter. While RDFN has a positive signal from hedge funds, it scores three out of 10 on TipRanks’ Smart Score system, implying weakness ahead. 

Is TOL stock a Buy, Sell, or Hold?

Shares of Toll Brothers carry a Moderate Buy consensus rating on TipRanks based on three Buy and eight Hold recommendations. Meanwhile, analysts’ average price target of $53.71 implies 18% upside potential. 

While analysts are cautiously optimistic, hedge funds sold 473.5K TOL shares last quarter. Meanwhile, insiders sold TOL stock worth $44.6K. With negative signals from hedge funds and insiders, shares of this leading luxury home builderToll Brothers stock has a Neutral Smart Score of four on 10.  

Is PulteGroup a Buy?

PulteGroup is a leading homebuilding company. It has received four Buy and four Hold recommendations for a Moderate Buy consensus rating. Further, analysts’ average price target of $46.64 implies 8.8% upside.

Per TipRanks’ data, hedge funds bought 821K PHM stock last quarter. Moreover, with a positive signal from bloggers, PHM stock scores eight out of 10 on TipRanks’ Smart Score system, implying better prospects ahead.

Bottom Line

While the easing of inflation and the expected slowdown in interest rate hikes is a positive signal for these real estate-related stocks, the uncertainty related to the economy could continue to play spoilsport.

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