For his second "Executive Decision" segment of Wednesday's Mad Money program, Jim Cramer spoke with Doug Yearley, chairman and CEO of Toll Brothers (TOL) , the homebuilder that just delivered a 33-cents-a-share earnings beat.
Yearley said that low interest rates continue to drive sales as more and more renters discover they can afford to own a home. Additionally, with more people working from home, they're able to live where they want to live and upgrade to the home they've always wanted. That's why new homes continue to see strong demand.
Yearley added that while the housing market isn't as "crazy hot" as it was last year, demand is still very strong.
When asked about affordability, Yearley noted that home prices at Toll rose 20% over the past year, but the company continues to be cautious when it comes to affordability. Nearly 40% of their homes fall into the "affordable luxury" category, he said, which is aimed at millennials and first-time home buyers.
Yearley noted that Toll's future depends on their land bank, and they continue to be astute land buyers.
Finally, when asked about commodity pressures, Yearley explained that lumber prices have fallen $40,000 per home from their peak, but other commodities continue to put pressures on their margins. Supply constraints and labor shortages have also added two weeks to the construction of a Toll Brothers home.
Let's do a home inspection on TOL's charts. In our last review of TOL on May 24 we wrote that "I have no special knowledge of their upcoming numbers but the charts of TOL suggest we could see $79 per share later in 2021."
In this daily bar chart of TOL, below, we can see that prices corrected down to the rising 200-day moving average line in July and then turned higher. Prices are trading above the now rising 50-day moving average line.
The On-Balance-Volume (OBV) line is showing strength from the middle of July. The Moving Average Convergence Divergence (MACD) oscillator turned bullish in early August.
In this weekly Japanese candlestick chart of TOL, below, we can see that tests of the 40-week moving average line have been buying opportunities.
Prices are pointed higher and the OBV line is ready to make a new high. A rising OBV line tells us that buyers of TOL are being more aggressive.
The MACD oscillator has narrowed and could soon cross to the upside for a cover shorts buy signal.
In this daily Point and Figure chart of TOL, below, we can see an upside price target of $68.
In this weekly Point and Figure chart of TOL, below, we used close only price data with a five box reversal filter. Here a $77 price target is shown.
Bottom line strategy: Get ready for TOL to test the highs of May. Raise stops to $54. The $77-$80 area is our price target.