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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: microhoogle! who wrote (21690)	1/18/2005 4:40:35 PM
From: microhoogle!	Respond to of 116555

From Briefing: Homebuilders. Wonder why TOL is considered defensive stock ? 3:27PM Dominion Homes (DHOM) 23.68 -0.21: Homebuilders (along with the bond market) were one of the biggest surprises of 2004: instead of selling off, both asset groups held steady and refused to give up ground. The large cap homebuilders, in fact, climbed a whopping 36% as new home sales continued to increase and backlogs improved. Only a few stocks managed to underperform in the interest rate friendly environment. Most of the laggards could be lumped into one category: small caps. Due to their smaller size and particular geographic breadth, they were more exposed to any interest rate fluctuations and regional slowdowns in demand. Dominion Homes was one of these issues - the stock decreased approximately 17% on a wave of distressing sales announcements for the Midwest (its concentration). Net sales were on the decline, and this trend was evident at the end of the year. Late last Friday, management announced that FY04 (Dec) home sales dropped 20% from 2003 levels as homes sold fell 33% to 392 homes. Closures also declined, by 8% to 2,837 homes, as 4Q04 home closures plunged 32%. The end result was a $71.4 mln contraction in the backlog, to $127.5 mln. The latter was a somewhat ominous sign for FY05 as the backlog determines a significant amount of quarterly/annual sales. Dominion Homes reiterated the 'cyclical business' of homebuilding, which suggests that the company believes it is entering a more difficult period. Briefing.com would not disagree, with our expectations for interest rates. We believe investors seeking exposure to the homebuilding sector should continue (Story Stock, June 8) to avoid DHOM in favor of more defensive names (e.g. TOL). Dominion Homes courts first-time home buyers, many of whom can be turned down for credit reasons, and it also focuses on the low-end market. This gives management less room to adjust selling prices for rising input prices (e.g. lumber), which should pressure margins noticeably along with slowing sales. -- Heather Smith, Briefing.com