Toll Keeps Making Money as Bubble Debate Rages
By James J. Cramer
02/06/2003 15:19
The housing bubble-nonbubble controversy can continue, but the simple truth is that Toll Brothers TOL is doing well and remains dirt-cheap because, unlike the dot-com bubble, everyone figures this housing streak has to end.
I have felt that, in the last few years, homes have become an asset class as opposed to something you just live in.
Or, as I put it in Dallas to one of my questioners recently, when people ask me about my best investment of the last two years, I say "It's a push between the new bathroom on the second floor and the office on the third."
That's what this Toll Brothers call today was like. The country's homebuilding market is a distinctly regional affair. If you want to know where the bubbles are, just listen to Bob Toll; it's where real estate is constrained.
And don't I know it. The hottest area in the country is the Princeton area, where I and a group of other responsible Greens just lost out to Toll Brothers in a contest over 200 acres of virgin farmland. No matter what we bid, Toll bid higher.
Sure, there's a bubble in areas like that. The funny thing is, although it's reasonable to believe that the bubble has to burst someday, there are so few properties available to build on in some of these northeastern markets where Toll dominates that I can't even see what will cause the bubble to pop other than a dramatic spike in interest rates. Even then, I'm not sure on the high end whether it will matter.
So, go short Toll cause of the bubble if you want to; I can't blame you. Nobody cares right now if a company reports a good quarter, as Toll just did. But a better reason to go short Toll is that a stock that sells at six times earnings can always sell at five or four times earnings. To me that's silly, but it is better logic than to believe that the bubble is just about to burst.
(Those of you who really want to understand the "bubble," listen to this call. Toll talks specifically about where there is pricing power and where there isn't. It is fascinating.)
Random musings: Just when you really hate a market, the fuel cell and low-priced telcos rally to rub it in! ... If you haven't checked out Street Insight yet, then you don't know what you're missing when it comes to earnings calls. On this Toll Brothers, we had Scott Rothbort following along with the call and posting his commentary on it in real-time. That's the kind of advantage you need. Click here to sign up. |
