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Strategies & Market Trends : Value Investing

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From: Paul Senior	12/30/2005 2:21:55 PM
	Read Replies (2) of 78748

Homebuilders. Giving my opinions here - unsupported by any real facts. 1. To this oft-asked question, "I have an appreciated house and/or I'm worried about the collapse of housing prices, what can I do about it(I can't move into an apartment, and I can't move out of state/out of country to cheaper areas)? the invariable answer is sell short housing stocks. Specifically by puts or sell calls. 2. The housing craze seems to be cooling - prices are stabilizing or declining in a couple of previously hot-selling areas; houses remain on the market longer in many areas; and interest rates are increasing. The housing stocks reflect this and have similarly cooled from the multi-year peaks seen in July. 2. There's a popular SI thread devoted to the coming residential real estate collapse. One presumes that on that thread, there are more than a few people enjoying their short positions and who remain hopin'-ana-prayin' for a collapse in homebuilding stocks. On the other side of that on SI are perhaps four people who are long homebuilders. Of the four, maybe one, maybe two will admit to be buying these stocks at current prices. Being in that most rare subset, I'll say that I've recently been increasing my exploratory bet on stickbuilder MDC. As MDC has been hitting new lows, I've been adding small amounts. The S&P report shows that MDC has increased earnings in each of the past ten years. I calculate ROE over 20% on average over the past ten years. S&P has MDC as a hold, but it also has a 2006 earnings estimate at $12. That'd be a p/e of about 5 (on MDC's current $61.70 price). That's too cheap imo, so I'm a buyer. Perhaps I'm using the rear-view mirror too heavily (relying on historical numbers). Others driving along the road apparently look ahead more and see many impediments to this company's continued sales/profits. finance.yahoo.com

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