Stock Watch

November 4, 2005

Each month we highlight two stocks selected as good bets by a premier analyst.

D.R. Horton

This company, which has $11 billion in assets, is "the No. 1 homebuilder in the US," according to Morningstar. "The fact that it's the biggest gives it greater economies of scale and adds to geographic diversification," Buckingham explains. It currently builds in 23 states and 71 metropolitan areas, so it isn't vulnerable to downturns in a sprinkling of locales. And, unlike builders who specialize in certain socioeconomic strata, D.R. Horton constructs homes ranging frlom 1,000 to 5,000 square feet, with prices from $80,000 to more than $900,000.

Buckingham pooh-poohs babble about a bubble: "Certain areas of the country are in a bubble, but you have to pay attention to the housing market as a whole," he says.

There are positive market factors like favorable demographic trends and low interest rates. An added bonus: a 1 percent dividend yield. "Dividend-paying equities have historically been less risky than stocks that don't pay dividends," Buckingham adds. "Besides, while it isn't much, 1 percent is better than most money-market instruments were paying a few months ago."

Another key factor that bodes well for D.R. Horton's future is that, like other big builders, it has a large inventory of land it owns outright and via option. "However, in Horton's case," says Buckingham, "they have around six years' worth, meaning they essentially control many of the desirable lots and have the wherewithal to continue to buy and option land that might not be built up until 2012 or later."

Traffix

This Internet database firm owns and operates a network of Web sites that cater to the consumer interests and lifestyles. For example, there's the dating site iMatchup.com, EZ-Tracks for music downloads, and RecipeRewards.com, which allows free access to more than 30,000 recipes. This full-service interactive media company receives data on the Web surfers who visit their sites and then shares the material with clients and partners.

Traffix has been in the black for 24 of the last 26 quarters, has no long-term debt, and boasts annual revenue growth of 60 percent through August. "It's attractively priced and has generated healthy revenues consistently, even during the Internet bust," says Buckingham.

The 12-year-old company combines the potential upside of a hot Internet stock with a strong balance sheet and a 5.7 percent, blue-chip-type dividend yield. "Its price target for the next three to five years is $11," says Buckingham. "And, while you're holding, you're getting a hefty dividend."