In putting together my Top 10 Stocks for 2009 last weekend, I focused on infrastructure, oil and agriculture. The 10 on the list are weighted to these sectors, as I believe they will deliver the biggest gains for the upcoming year.
I could have very easily added the homebuilding sector to the above list, but with only room for 10 stocks I had to draw the line somewhere. That said, I just could not resist the bargains in the builders, and I managed to include Pulte Homes (NYSE: PHM) to the list.
I had a hard time selecting just one builder, but a list of 10 requires one to make tough choices. I choose PHM for the relative safety in its valuation. At the time, the stock traded for about 60% of book value.
Other homebuilders traded for much lower valuations, and a close second to make my Top 10 list, is Lennar Corp. (NYSE: LEN). Trading at 20% of book value, I thought LEN was worthy of the speculation.
Historically, homebuilders with values at 80% of book value make for a great buying opportunity. Of course, we have heard that tune before, as calls for a bottom in real estate have been hollow for some time.
That said, this call for a bottom might be different. Trading for levels well below book value provides great protection on the down side. At the same time, home values have declined so much during the past two years, that I think any further deterioration in the market is unlikely.
Apparently others are seeing what I see with respect to the builders. On Tuesday, UBS upgraded LEN to a buy. The stock was up $1.50 or so on the news.
More importantly, the government announced plans to assist the consumer and mortgage debt markets. Mortgage rates dropped 50 basis points on the news. Many are suggesting that the government do even more here.
Low interest rates for mortgages combined with significantly lower purchase prices would go a long way to removing inventory for the market. Keep in mind, demand for housing is still strong.
It is the affordability in principle and cash flow that created the crash, and it will be the reverse that solves the problem. That is what is happening slowly, but surely.
I would be a buyer of homebuilders before it is too late. The group is heavily shorted and any sign of a recovery could trigger short covering that will push shares higher.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
11-26-2008 @ 8:48PM
Steve said...
More like short LEN while you can. Homebuilders are guaranteed to see big losses for at least three more quarters. Any industry that requires 4.00% mortgage rates to even think about getting back into the black doesn't sound like a good bet to me.
11-26-2008 @ 9:42PM
chris pelyk said...
Hello Jamie
I was curious about what you top 10 stocks were for 2008 and 2007.
A link would be great, looked quickly online and did not see anything.
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11-27-2008 @ 1:16AM
BHarrison said...
Lennar is another one of those "publicly traded" corporations where the CEO is "skimming off a lot of the profit in EXORBITANT SALARY aand BONUSES.
In addition to his enormous salary, Stuart Miller, the CEO, has for many years gotten annual bonuses in the neighborhood of OVER $20 MILLION. The company has always been "politically connected"; and in my opinion, builds rather poor quality houses.
11-27-2008 @ 6:07AM
lance said...
i am a single family home builder in the great state of massachusettes. we have sold 8 new homes this year and have 3 more on deposit. these 3 are already being framed and will close in feb-mar 09.
i have already picked up some great land deals for 15 more lots at fire sale prices.
the phone here has started ringing off the hook. people are starting to realize that they will never get a better chance to buy a new home at these prices ever again.
this collapse will all be a memory come next spring and you can rest assure i'm going to be able to start raising my prices for next summers build outs. we will never ever see rates and prices again in this country at these levels. once it all starts to flow again prices will be higher than what they just feel from in the last 18 months and never return to these levels.
i'm seeing people making 30k-40k ever time they buy now at the closing table in equity and they love it. bank apprasiers come out and can't belive the deals these folks are getting. the cost of materials has increased 12% over the same period and with no end in site. remember he who hesitates loses. come on spring market hurry up and get here
11-27-2008 @ 6:20AM
al coholic said...
Who knew that Massachusetts, previously famous for the "Massachusetts miracle" is the new "Oz?"
Maybe you should consider clicking your heels three time to get back to reality.
11-28-2008 @ 1:55PM
Jamie Dlugosch said...
Hello,
A few have asked for my top 10 list for 2007 and 2008. Here they are with one year return:
2007
Travelzoo -54.32%
Google +50.17
Sirius -14.4
United Health +8.3
Apple +133.5
NutriSystem -57.4
Plantronics +23.6
Garmin +75.6
Daktronics -38.6
Appolo +80.01
Composite return +20.9% vs. S&P 500 -2%
2008 (ytd returns)
DryShips -93.0%
United Health -63.9
Sirius -93.4
Tesoro -80.7
Trina Solar -82.3
Viropharma +42.3
Microsoft -43.2
Trinity -46.4
Pantry -26.0
Amgen +19.6
Composite return -46.7% S&P500 -39.0
11-30-2008 @ 8:18PM
joe said...
THIS is prime land in the bay area,now ,keep the illegals off this project & put the local people in this area.to work.the legal ones.
12-01-2008 @ 7:34PM
brad said...
hey thanks for the insight. bought 200 shares and lost around $300.00 following today's close. we should all read into your wording "worthy of the speculation." so, now we'll see what happens.