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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: zonder who wrote (1682)	5/22/2003 10:11:19 AM
From: ild	Read Replies (2) \| Respond to of 4912

AHEAD OF THE TAPE By JESSE EISINGER Home Builders, Sweet Builders If interest rates are going to stay low awhile, as Alan Greenspan keeps indicating, then home builders continue to be the place to be. The stocks in every company in the sector have been vaulting. Lennar, arguably the best-managed home builder, is up more than 30% since early March. Yet, even at Wednesday's $59.50, the stock is at only a multiple of 7.8 times this year's projected earnings. It's natural to try to figure out if the bullish case is intact. The sector is one of the most polarizing on Wall Street, with the bears contending the stocks are at historic highs, the housing market is bound to slow, the sector is deeply cyclical and the companies have few sustainable competitive advantages. The bear case is weak. Interest rates aren't going up anytime soon. If they do, that would suggest the economy is strengthening, which would lead to higher employment and cushion a slowing housing market. If you believe the economy is falling out of bed, tech and autos are much better shorts. A focus on interest rates or, for that matter, the incremental weekly or monthly data, ignores the underlying compelling thesis for owning the best home builders: The publicly traded companies continue to take share from the privately held builders. The publicly traded home builders' market share has gone to 24% last year from 8% in 1990, according to CSFB. It's going higher. The publicly traded home builders have better access to capital and their capital is cheaper. In an indication of how entrenched skeptical attitudes toward home builders are, Lennar became an investment-grade company only just this year. This is after years of double-digit earnings growth and return on capital above 20%. Moreover, demographics are strongly in home builders' favor. They benefit from immigration and migration to sunny states. Rates of homeownership are on the rise. At single-digit P/E ratios, the risk is low. Bears talk about the stock prices being high relative to book value, but these companies probably should be valued on the value of the discounted cash flows. That will be strong for years to come. Are you selling the home builders? Send arguments or comments to tape@wsj.com1 and check Mondays for selected letters in Tape Exchange2 at wsj.com/tape3