Moore Capital gets busy in Beazer Homes

Although analysts expect the company to lose $2.70 per share this year, it is expected that the company will rebound to positive-earnings territory by next year when analysts expect the company to earn anywhere from $.50-$2.50 per share. While this is certainly a wide range that makes it hard to come up with any concrete value for the stock, one could argue that, if the company is in positive earnings territory, it will no longer be forced to write-down its book value. In addition, while home prices certainly aren't expected to being recovering this year, a 2008-2009 recovering certainly is not inconceivable. Such an event (a recovery) would imply that book value has bottomed because home builders have been forced to write down book value with land depreciation. Home builders very rarely trade below .75x book, as an average. Only once have they traded for .5x book. Even if Beazer's book value is still overstated by a significant amount, investors in the stock who are patient enough to wait for the next up-cycle (conceivably within the next five years) are likely to profit handsomely.

While homebuilding stocks like Beazer certainly aren't for the faint of heart or impatient, those investors who can wait out the times of doubt and uncertainty will be poised to benefit tremendously when the industry bounces back. That being said, the pro-home builders position is an idea that I find hard to justify at this current point in time. Not only do I believe housing prices have some more room to fall (primarily as a result of more mortgage foreclosures, specifically subprime), but I also think that there will not be an immediate "bounce" because potential home builders will likely remain skeptical. I expect a more "slow and steady" rise in housing prices when the next up-cycle begins. Consequently, I feel like investors interested in building exposure in the home builders industry should wait until positive news flow begins. Although this move will likely prevent investors from catching the bottom in housing prices, they will most likely not have to be exposed while the tremendous headline risk for the entire industry still exists.

What do you think? Is it too early to jump back into home builders?