Why is shorting homebuilders like buying airline stocks ?
I think in both cases the macro level themes -rising interest rates, increasing need for air travel - are over come by the competitive and micro economic factors.
This ususally doesn't happen.
I tend to look at the big macro factors first, and I have the (sometimes hidden) assumption that macro factors will overcome all others. With oil and natural gas, supply demand has been such that almost any oil company stock would make money if held for say 2-3 years.
With airlines in a deregulated world, or even a world where regulators favor the traveling public over airline investors, there is no barrier to entry, no sustainable competitive advantage, and for the industry as a whole, NO PROFITS.
The US homebuilders have an opposite situation. The dozen or so public companies are competing with much, much smaller local builders. The public companies have access to cheaper capital, both debt and equity, and have 'land - banked' much desirable acerage at low prices. They get economies of scale and volume discounts on parts (stoves, air conditioners, wiring panels, bath tubs). This means higher profits or lower selling prices. They get a better learning curve from thier experience. They get better working with local zoning boards and politcians.
Being geopgraphicaly diverse, they can move activites to hot, profitable areas.
Right now, the public companies build only about 20-25% of US houses - they can gain market share for a long time.
Additionally, the valuations of the homebuilders are still low relative to the market.
Throw in the fact that all the homeboys have been over shorted - just like Krispy Kreme DOghnuts was....
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I bought today - MSB Mesabi Trust - sells iron ore. (not most significant bit) I will need to do more DD. |
