Opinions The Panic-Proof Portfolio (Stockchase Research)
Toll Brothers Inc.TOLTOP PICKMay 13, 2025
Stock price when the opinion was issued
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Premium contentOur PAST TOP PICK with TOL has triggered its stop at $136. To remain disciplined, we recommend covering the position at this time. When combined with previous guidance, this will result in a net investment gain of 19%.
Premium contentThere continues to be problems in the U.S. with home builders, a business which is very sensitive to higher interest rates. Rates are coming down especially since there will be a new Fed Chair next May who will lower rates. With immigration down there is less labour available. Costs are higher along with tariffs on lumber. He thinks the problems are transitory and the situation will improve.
Gordon ReidPremium contentPremium contentPremium contentFollowing recently reported record Q2 revenues -- beating analyst estimates by almost 10% -- we reiterate TOL as a TOP PICK. It trades at 9x earnings, 1.5x book and supports a 19% ROE. It has been prudently using some cash reserves to aggressively buy back shares and retire debt. We recommend trailing up the stop (from $87) to $96, looking to achieve $137 -- upside potential of 16%. Yield 0.8%
(Analysts’ price target is $137.07)Homebuilder space hit very hard over last 30 days. He sees it as an opportunity. Stocks go up and down, focus on the fundamentals. Long term, the chart's been good. One of his favourites. Wholeheartedly recommends.
Gordon ReidHe bought this and other homebuilders in 2009 during the crisis and still owns them. They remain great performers. The US remains 5 million housing units short, unable to keep up with immigration. However, labour is about to get very tough, if Trump follows through with expelling undocumented workers, many of who work in this sector.
Gordon ReidLast week, they reported a fine quarter, but not their guidance. Their backlog is slipping 7% year over year, though better than expected. They guided the current quarter that fell short for Wall Street. The CEO noted that the housing market was soft in September and October, but climbed in November after the election gave homebuyers clarity. Also, the wealth transfer from parents to Millennial homeowners is underway. TOL is up 30% this year. Bottom line: TOL appears to be working harder than the street expected to maintain numbers in a tepid housing environment. Shares are down 15% in the past week.
US homebuilding is a key piece in economic recovery. TOL is a luxury builder trading at 8x earnings, 1.4x book and a ROE of 20%. We like that over 25% of their buyers pay with cash -- insulating them better than their competitors from short term economic pauses. Cash reserves are being maintained despite an aggressive share buy back and debt being retired. We recommend setting a stop-loss at $87, looking to achieve $140 -- upside potential of 26%. Yield 0.8%
(Analysts’ price target is $140.14)