Demmert: TOL "Best" Housing Stock, Fed Offers Bullish 2026 Path

Core Viewpoint - Toll Brothers is expected to perform well in the current housing market, potentially meeting or exceeding earnings expectations due to strong management and a solid balance sheet [2][3][12]. Company Performance - Toll Brothers has consistently beaten earnings expectations in the last two quarters, indicating effective earnings management even in a challenging environment [3]. - The company is viewed as the best among its peers, reflected in its share performance [3][12]. Market Conditions - The housing sector has faced headwinds for the past couple of years primarily due to high mortgage rates, which have significantly increased housing costs [2][5]. - Current mortgage rates are over 6%, which has doubled the cost of housing compared to when rates were under 3% [5]. Luxury Housing Market - The luxury housing market remains active, with some sellers pulling their homes off the market, indicating a cautious approach among potential buyers [4]. - There is a belief that the luxury market could rebound strongly once housing demand increases [2]. Investment Outlook - The stock is considered a value trade, currently priced at nine times earnings, which is seen as attractive for patient investors [12][13]. - The performance of Toll Brothers and similar stocks is closely tied to the movement of mortgage rates, with a need for rates to decrease for significant stock appreciation [5][9]. Economic Indicators - Future performance may hinge on Federal Reserve actions regarding interest rates, particularly in 2026, which could influence mortgage rates and overall economic strength [6][12].