No Pop Yet for the Housing Bubble
thestreet.com
By James J. Cramer
RealMoney.com Columnist
3/7/2005 9:16 AM EST
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Homebuilders
# When Toll Brothers looms larger than tech in the news, the housing bubble will be near bursting.
# The multiples for homebuilders are still expanding, so we aren't on the verge of the destruction of the cycle.
# We have to view these stocks as the secular growth stocks of this era.
When will the housing bubble burst? I have an idea: when we start paying more attention to Toll Brothers' (TOL:NYSE - commentary - research) midquarter updates than we do to Texas Instruments' (TXN:NYSE - commentary - research) midquarter updates.
Twenty years ago I strolled into the office of Michael Steinhardt and told him that he should buy Toll Brothers because it was only at 6 times earnings. The legendary hedge fund manager sat me down and screamed at me for about a half hour about how you had to short the homebuilders when their multiples were shrinking because that was the prelude to the real destruction of the cycle.
I told him I knew different. I had friends there. I knew that business was strong.
I then watched, helpless, as Toll Brothers rolled over and got cut in half. After it did, of course, we discovered that business had gone soft.
I was mortified.
Now we are at a different juncture with Toll Brothers. This time, the multiple is expanding. Doesn't matter, though. It's as hated as ever. It just moved from $9 to $11. Of course, we could say that's the greater fool theory at work. We could argue that this time is no different and that the short bet is a good one. (Doug Kass, on our sister site, Street Insight, makes this case.)
To me, that's nonsense. To me, we have to view these stocks as the secular growth stocks of this era, unlike the Texas Instruments of the world, which are cyclical and need far more growth than this world can provide.
Toll's a land bank in an era when we're short of land banks. Toll's an execution machine in an era when many companies aren't executing well. Toll's a regional going national, a Wal-Mart from Arkansas going nationwide.
But the market doesn't want to look at it like that. I always cringe when I see Bob Toll on any show other than my own -- which, mercifully, should start next week -- because he then will have to answer the same set of questions that were put to him 2 multiple points and 50 real points ago: When are you going to roll over and die?
One day, you will hear others talk as I do. On that day, and on that day only, will we be back in Steinhardt's office getting the ol' tongue lashing.
Until then? Stay long. |
