Following this week’s record low reading for new home sales, you might think now is the worst time to bet on a housing recovery.

Think again.

The aftermath of such disappointing news represents an ideal contrarian opportunity. And I’m convinced that now is the perfect time to bet on a real estate recovery – at the housing market’s “ground zero,” no less. Yes, I’m talking about in Florida and Arizona.

Now, before you think I’m crazy, consider this: Even the late, great value investor Benjamin Graham would agree. Here’s the deal…

Avatar Holdings: Profitable formula that involves no guesswork

If you’re looking for me to tell you precisely when a rebound in real estate prices will materialize, I unfortunately don’t have a crystal ball.

However, I do own a pocket calculator and it reveals an extreme disconnect between the market price and the liquidation value for Avatar Holdings (NASDAQ: AVTR, Stock Forum) – a developer of active adult and primary residential communities, with over 16,000 acres in Florida and Arizona.

The formula I’m using to make the determination here is one with a storied and irrefutable track record – Ben Graham’s Net Current Asset Value (NCAV) per share.

Running the numbers on Avatar reveals that the stock is worth $32.86 per share. However, it’s currently only trading for about $20 per share. That means you can purchase the company for roughly 60 cents on the dollar.

Ben Graham would only purchase stocks trading at or below 65% of their NCAV. Or more simply, he only bought stocks trading for 65 cents on the dollar or less.

So as you can see, even by Ben Graham’s strict criteria, Avatar ranks as a buy.

Patience is a virtue with this housing stock

I assure you that such disconnects don’t last indefinitely. Eventually, investors or an acquisition-hungry company will take notice and bid up the price.

That’s why the long-term performance of stocks trading below NCAV is so impressive, topping 35% per year since 1985.

However, I need to make one thing clear: Profiting from Avatar will require patience. After all, I’m not a complete idiot.

I recognize that the real estate crisis is far from over. Unsold homes, foreclosures and delinquencies continue to pile up. And now, even prime borrowers are behaving badly, defaulting on their loans. At the same time, sellers remain stubborn, which means prices need to fall even further.

That said, we’re much closer to a bottom than a top. And unlike almost every other homebuilder, Avatar is fundamentally fit to survive this downturn.

Avatar’s management goes on an Oscar-winning scavenger hunt

Rather than acting like turtles, curling up in their shells until the crisis passes, Avatar’s management team is vulture-like, scavenging the land for historic discounts.

And the executives are finding them.

For example, take the company’s purchase of Seasons at Tradition in Port St. Lucie, Florida in September last year. Here’s what Avatar scooped up…

Total cost: $7.4 million.

When the previous owner – the now bankrupt homebuilder, Levitt and Sons – defaulted on the property, the firm still owed $86 million. So in other words, Avatar picked up the assets at a 91% discount.

Avatar Holdings: Don’t follow the herd… be contrarian

With over three decades of experience in the field and a $213 million war chest, no doubt Avatar will uncover many more bargains in the months ahead.

The company’s other strategies include…

It’s these kinds of things that should put Avatar in a perfect position to rake in profits when the real estate recovery finally materializes.

Avatar is perhaps one of my most contrarian picks. But I have no reservations making it…

So fight your gut and be a contrarian. It’s time to buy residential real estate in Florida and Arizona. And when it comes to Avatar, even Ben Graham would agree.

Disclosure: The author does not hold positions in any of the stocks mentioned