Luxury homebuilder Toll Brothers Inc. (NYSE: TOL) stated that it was still looking for the light at the end of the tunnel when it reported preliminary first quarter earnings, which marked the seventh straight quarter of declining revenues.

During the quarter, the company had a 22% drop in revenues from the same period last year. The company is getting hit from a couple of different angles including falling home prices. On top of that, the average number of canceled home orders has also been on the rise. Finally, the company reported that the number of signed contracts dropped 46% from the same period last year.

Across the nation, Toll is seeing weak conditions in most areas, and expects the current challenges to continue for some time. The company compared the current situation to that of the Titanic, "things don't turn on a dime". Interesting comparison for the company. When companies start to compare their industry to the fate of the Titanic, you really have to start to wonder just how bad things have gotten, or are about to get. It definitely doesn't paint a pretty picture if you ask me.

Shares of the stock are down about 1% this morning in the premarket. The company is due to report complete first quarter numbers on February 27.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"Homebuilders have been in a slump, to say the least," says Jim Farrish, editor of Sector Exchange.

"The technical charts on homebuilders look very similar to those of technology stocks during their rise from 1998-2000. In fact, the index has declined more than 70% peak to trough. Looking toward 2008 and the housing market, we could start to see a turnaround.

"The start is likely to be government aided, which is why we like this as an aggressive play, as the Federal government will put more money into fixing something than corporate America. Current proposals will not come close to fixing it, but will at least put a band aid on the situation and allow the healing process to begin.

"Our vote to benefit here would be Toll Brothers (NYSE: TOL). The company has one of the better-looking balance sheets in the industry and management has done a fairly good job of dealing with this downside market.

TheStreet.com's Jim Cramer says until the public feels they won't lose money on a home, no problems will get solved.

Would you ever buy a house in this environment? That's really the ultimate question that has to be asked -- that the Fed should be asking -- if this junk is ever going to come back to life.

I know some of it is so short-term that the jury's back and the verdict is guilty, but most of it hinges on a simple issue: housing depreciation. If you think that your house is going to lose value, default on the second home lien. Which then, we know now, means defaulting on the ultimate mortgage.

The Fed can tinker with LIBOR (I still can't believe they wasted the banking system's time with the LIBOR/auction plan). It can issue statements that are a little more pro-growth than neutral.

Or it can try to change the psychology of the home buyer and homeowner.

Shares of luxury home builder Toll Brothers Inc. (NYSE: TOL) are trading up 1.72% in the premarket following this morning's fourth fiscal quarter earnings release.

The company posted a fourth quarter loss of $81.8 million, or 52 cents per share, hurt by the slumping housing market and credit crisis. Included in the company's figures were $314.9 million pretax writedowns related to sold homes that came with no profit. Excluding that, the company's fourth-quarter earnings were 72 cents per share. Analysts had been expecting to see the home builder lose 77 cents per share.

The company also posted a 35% decline in its quarterly sales, which slipped down to $1.17 billion, slightly ahead of analysts' expectations for sales of $1.166 billion.

According to a statement from Robert Toll, chairman and chief executive officer, the year of 2007 was "the most challenging of the forty years" as Toll Brothers posted its first quarterly loss in 21 years. Looking ahead, despite its disappointing earnings, the company anticipates to sell in fiscal 2008 homes in a range of 3,900 and 5,100 at around $630,000 to $650,000 per home.

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

So we've heard some pretty dumb excuses for bad corporate performance. Overstock.com (NASDAQ: OSTK) blames it on short sellers and reporters. Blaming the weather is an age-old tactic for retailers.

And then there's Toll Brothers (NYSE: TOL) CEO Robert I. Toll, who knows how to make the housing market get better: The media needs to stop talking about how bad it is.

It's vaguely reminiscent of one of my favorite movies, Spinal Tap. In the best-known scene, Nigel Tufnel explains to an observer that the band's amps go to 11, rather than 10. The incredulous man asks how that really makes them go louder -- they only go to a certain volume, regardless of what number it's labeled.

Toll Brothers Inc. (NYSE: TOL) announced yesterday that it expects a 36% drop in quarterly home-building revenue this quarter, adding that net new home orders fell more steeply than in prior quarters. CEO Robert I. Toll blamed the poor numbers on the media's focus on the slumping housing market, which he says overshadowed "the positive underpinnings of low interest rates, low unemployment and a decent economy," which could eventually boost home-buyer confidence. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TOL.

After hitting a one-year high of $35.64 in February, the stock hit a one-year low of 18.85 in August. This morning, TOL opened at $20.35. So far today the stock has hit a low of $20.11 and a high of $20.70. As of 10:55, TOL is trading at $20.44, down 45 cents (-2.1%). The chart for TOL looks neutral and deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $25 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 4.2% return in 6 weeks as long as TOL is below $25 at December expiration. Toll would have to rise by more than 22% before we would start to lose money.

TOL hasn't been above $25 since July and has shown resistance around $23.50 recently. This trade could be risky if the Fed cuts cause the housing market to bounce back quickly, but with the company itself trying to shift blame and prepare investors for the worst, it looks like an immediate recovery is probably a long shot.

Brent Archer is an options analyst and writer at Investors Observer.

Forget crooked mortgage companies. Forget greedy speculators. Forget lax credit ratings agencies. The real reason for the housing crisis is the media.

Toll Brothers Inc. (NYSE: TOL) Chief Executive Robert Toll seems to think that the housing crisis would improve if the media didn't write about it so much.

"Perhaps as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page," the New York Times quotes Toll as saying.. "Then, hopefully, the positive underpinnings of low interest rates, low unemployment and a decent economy will raise new-home-buyer confidence."

Fat chance of that happening.

I doubt anyone will be surprised to hear that Toll Brothers (NYSE: TOL), a luxury homebuilder, faced another quarter of poor earnings [subscription required]. The company said it expected to report a 36% fall in its fiscal fourth quarter revenue to $1.17 billion. Robert Toll doesn't think the worst is over yet. Signed contracts dropped from 1,595 a year ago to just 1,073 in the fourth quarter. The company's backlog of inventory on Oct. 31 was $2.85 billion, down 36%, but still pretty high.

Last month Robert Toll said the housing market hasn't bottomed out yet and he doesn't think Federal Reserve interest rate cuts will help fix the problem. He believes only a return to conventional underwriting standards will ultimately fix it. While I agree with Toll, the truth of the matter is that fixing the housing market will be a very long road. More than a return to conventional underwriting standards needs to be done if we want to hear some goods news from the housing sector any time in the next two years. In many areas of the country, the inventory of homes for sale sitting on the market would take two to three years to clear, and it's only going to get worse as foreclosures rise.

I can certainly understand why those who pay their mortgages on time would be angry about giving help to those who don't. However, the reality of the situation is that all homeowners -- both those who are paying on time and those who are not able to -- are hurt by the rising inventory of unsold homes. As inventories rise, prices will drop. If anything can be done to help people stay in their homes rather than force them out, it's good for everyone. While I don't support the idea of a free ride or bail-out, there are many ways to restructure loans to give people an option, such as longer loan terms and reasonable fixed rates. Hopefully we'll see some rational moves by the loan servicers and those they serve soon. I'm sure many of them are starting to realize that regular payments on a loan, even at lower interest rates, is better than getting the vacant home back by foreclosure.

Lita Epstein has written more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Reading Financial Reports for Dummies."

The housing sector finally got a break today after the Commerce Department reported that September new home sales were up from the August numbers, to 770,000 in the month from 735,000 in August. Analysts were at best cautiously optimistic, stating that one month's report does not mean the downtrend in housing has been reversed, and also that the Commerce Department numbers are not always accurate. The figures were revised down by almost 10% in August, in fact.

However, Toll Brothers (NYSE: TOL), as a luxury home builder, is somewhat less exposed to the credit problems plaguing others around the industry. If you think the September sales numbers are a good sign, then now could be a good time to look at a bullish hedged trade on TOL.

Like others in the housing sector, TOL has been beaten down this year, from a high of $35.64 in February to a low of $18.85 in August. The stock has seen some gains over the last two months, but continues to struggle against resistance in the low $20s. TOL opened this morning at $22.16. So far today the stock has hit a low of $22 and a high of $23.19. As of 2:50, TOL is trading at $22.49, up $0.31 (1.40%). The chart for TOL looks bullish with slight deterioration, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

TheStreet.com's Jim Cramer says names in this group are now trading vehicles, not long-term investments, but that doesn't mean they're any less critical to own.

Here we are again in the weeklong pullback in oil where the stocks all get thrown out and no one wants to touch them. We will soon hear from the chartists (as I call technical analysts) that these stocks were unable to take out their highs, or they are getting the right -- and cold --shoulder.

How long until I hear that now that the bubble has popped and you are looking at Exxon (NYSE: XOM) (Cramer's Take) as Toll (NYSE: TOL) (Cramer's Take) at $50 and Chevron (NYSE: CVX) (Cramer's Take) as Lennar (NYSE: LEN) (Cramer's Take)?

Plus you have the ne'er-do-wells, like the ridiculously poorly run BP (NYSE: BP) (Cramer's Take), truly stinking up the joint.

So, what should you do?

How about buy them?

Hovnanian Enterprises Inc. (NYSE: HOV) deserves kudos turning lemons into lemonade. This weekend, the upscale homebuilder had a "sale" where lucky home buyers could get about $100,000 in price cuts through incentives, upgrades and add-ons. Media reports indicate that it was a huge success.

Thousands of people lined up at Hovnanian developments in 19 states over the weekend for what the company dubbed as "The Deal of the Century," according to CNBC. You can bet that other home builders including Lennar Corp. (NYSE: LEN) and Toll Brothers Inc. (NYSE: TOL) took note of Hovnanian's success and will follow suit. Banks stuck with huge amounts of foreclosed properties might also start to get creative as well. It's a good sign but people shouldn't expect miracles.

CNBC's Jim Cramer is bearish on most of the housing sector, even predicting the demise of a few major players including DR Horton (NYSE: DHI) and Beazer Homes (NYSE: BZH),. But he believes Toll Brothers Inc. (NYSE: TOL) will be one of the least damaged companies in the industry. Cramer notes that Toll Brothers is okay because the company only really builds luxury homes – Toll's customers are not high risk loan candidates, and they are not terribly damaged by the mortgage issues surrounding the market right now. If you are inclined to agree, then it could be a good time to get into a bullish hedged trade on Toll.

After hitting a one year high of $35.64 in February, the stock has been beaten down with the rest of the housing sector this year, hitting a one year low of $18.85 earlier this month. This morning, TOL opened at $21.89. So far today the stock has hit a low of $21.26 and a high of $21.96. As of 10:45, TOL is trading at $21.29,down $0.71 (-3.2%). The chart for TOL looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

If you agree with Cramer, then for a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just 2 months as long as TOL is above $17.50 at October expiration. Toll would have to fall by more than 17% before we would start to lose money.

TOL hasn't been below $17.50 at all in the past year and has shown support around $21 recently. This trade could be risky if investors don't consider the positive aspects of TOL before panic-selling the stock, but this position could gain protection if the Fed decides to take action to help the credit problem.

Brent Archer is an options analyst and writer at Investors Observer.

In typical times, a report indicating that a company's quarterly earnings fell 85% would spark a sell-off in the stock.

But these are atypical times for the markets and for the economy, and Toll Brothers' (NYSE: TOL) report that Q3 EPS had dropped to 16 cents from $1.07 a year earlier, did not overwhelm Wall Street. In fact, shares closed higher on the day the report was released, Wednesday, up $1.06 to $22.15.

However, this is not to state that Toll Brothers merits possible inclusion to the typical investor's portfolio at this juncture. Toll Brothers management underscored during their conference call that visits to it developments have been "horrible," with traffic down substantially.

Further, Toll's backlog of houses under contract and not sold at the end of Q3 was $3.7 billion, down 34% from a year ago. In unit terms, the Q3 backlog totaled 4,997 homes, down 38% from a year ago.

MOST NOTEWORTHY: Countrywide Financial (CFC), Toll Brothers (TOL), United Parcel Service (UPS) and OSI Pharma (OSIP) were today's noteworthy upgrades:

• Both Friedman Billings and Wachovia upgraded Countrywide Financial (NYSE: CFC) to Market Perform from Underperform following the $2 billion investment by the Bank of America (BAC).

• JMP Securities upgraded Toll Brothers (NYSE: TOL) to Market Perform from Underperform and believes the worst news on housing is reflected and that fears over a disappearing jumbo loan market are overblown.

• Matrix upgraded United Parcel Service (NYSE: UPS) to Buy from Hold to reflect strong demand from overseas shipping.

• Wachovia raised OSI Pharma (NASDAQ: OSIP) to Market Perform from Underperform on valuation...

OTHER UPGRADES:

• UBS raised Joy Global (NASDAQ: JOYG) to Buy from Neutral.

• China Netcom (NYSE: CN) was raised to Neutral from Sell at UBS.

• Roth Capital upgraded IMAX Corp (NASDAQ: IMAX) to Buy from Hold.

• WedBush raised InfoSpace (NASDAQ: INSP) to Buy from Hold.

• Tyson Foods (NYSE: TSN) was upgraded to Hold from Sell.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).