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May 08, 2006
Opportunity in Homebuilder Stocks?
Here’s a stock tip.
Check out the homebuilder stocks. Why? Let me explain:
Last week, Mara Der Hovanesian authored Handicapping the LBO Stakes which created a list of stocks that may appeal to groups of private equity investors flush with cash and looking for deals. The main targets were those “companies with flat stock prices, low earnings valuations and heavy debt,” she wrote. What I found so striking is that nearly every major housing stock is on the list: D.R. Horton; Pulte Homes; Lennar; KB Home and Toll Brothers.
Savvy investors know that if they’re lucky enough to own stock in a company that is being pursued, they can make handsome gains. While no one can say with certainty what companies will be acquired, this list might help.
In this week’s issue, I did a Q&A with Michael Youngblood, the managing director of Friedman Billings Ramsey & Co. His recent research forecasts housing prices in 379 metropolitan statistical areas and shows that the greatest housing appreciation will be coming in the so-called bubble markets. Though he admits he isn’t a stockpicker, he suggests that investors not shy away from homebuilder stocks. Even those companies that operate in bubble markets may still be good buying opportunities.
Given the possibility of a leveraged buyout and the opportunity for some appreciation in these homebuilding stocks, it’s worth taking the time to dig a bit further.
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While I agree with the contrarian strategy and buying value, I have a feeling these homebuilders are going to have a few quarters of missed earnings estimates and warnings. The slowdown in housing has to catch up with these guys regardless of incentives or buyer programs they put in place. Perhaps these stocks are discounted now because of the pain that is expected to come.
Dont forget, if they do warn and revise guidance lower, than all of a sudden that low P/E of today becomes more justified and actually rises as earnings came in below estimates.
Posted by: UrbanDigs at May 9, 2006 09:06 AM
I have a question about Pulte Home's involvement with Ave Maria Town. While Tom Monahan, the Dominos Pizza founder behind Ave Maria Town has assured everyone that the project isn't for Catholics, what is going on with Ave Maria School of Law?
Posted by: Clinton at May 12, 2006 08:46 AM
The thought of buying a homebuilding stock right now sounds ominously familiar to cheerleading techs in 2001..."How much worse can it get?" from the infamous "this time it is different." only 1 year before.
Posted by: jim at July 30, 2006 05:19 AM