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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Ken W who wrote (1834)	3/17/1998 7:32:00 PM
From: Sergio H	Read Replies (2) \| Respond to of 29382

TODOS: I found the reason for DHI's sell-off in the afternoon. An analyst downgraded the home building sector. What a party pooper!!! Here's an article with the scoop and some investment ideas: How to invest in the current housing boom Hint: You're too late to buy stock in home builders By Michael Brush Americans are buying more homes than ever, and it is easy to understand why. A hopped-up economy and raging bull stock market have left people feeling better than ever about their finances. Consumer confidence has followed employment to lofty levels. Throw in rock bottom mortgage rates, and you have what it takes for the housing boom. Red-hot growth was confirmed once again Tuesday by Commerce Department numbers showing that new home building last month was at its highest level in a decade. "It would be hard to imagine a better combination of events for the housing market than what we have right now," says David Berson, the chief economist of Fannie Mae, the largest provider of funds in the mortgage market. Demographic trends are adding to the housing demand as well, notes Berson. Baby boomers are trading up to larger homes. Those that have held out are now buying. And the huge number of immigrants that came to this country in the 1980s are becoming homeowners in the 1990s. Yes, the economy may slow down a bit by the end of the year. But Berson expects the housing market to remain strong, nevertheless. And like many economists, he sees no sign of either of those two housing market killers -- high interest rates and recession. So how do you play this booming housing market as an investor? Buy stock in home builders, right? Nope -- it's too late for that. Everyone else has beaten you to it. To find out the best way to invest in the red-hot growth in the sector, we turned to financial data service Baseline to run a screen for housing sector- related stocks that have two qualities we wanted. First, we sought companies that have had good upward revisions in profit forecasts recently, an indication that analysts expect more good news ahead. Second, we wanted to cut out all the stocks in the group that have already been chased up too high by investors. So we looked for companies that had forward price earnings ratios near their long term earnings growth rates, a common measure of value As expected, this screen pretty much cut out the home builders. Investors have already driven up all but the severely wounded, as the good news about the housing market has unfolded in recent months. So it was no surprise that building stocks got downgraded Tuesday by Salomon Smith Barney precisely because they have appreciated so much. Instead of the home builders, we found some promising candidates among companies that make things that go into homes. * Sunbeam (NYSE: SOC) Shares in this home appliance maker shot up earlier this month when news broke that it was on a buying spree. Sunbeam is purchasing fire alarm maker First Alert (NASDAQ: ALRT); Mr. Coffee machine maker Signature Brands USA (NASDAQ: SIGB); and Coleman (NYSE: CLN), which makes camping gear. Despite the rise in Sunbeam's price, Oppenheimer analyst Scott Graham thinks the stock has much further to go, for these reasons. First, Sunbeam Chairman Albert Dunlap, known as "Chainsaw Al" for his job slashing tendencies, thinks he can wring out savings of about $150 million before taxes from the three companies by the end of next year. Sunbeam, for example, should be able to transfer some of the manufacturing done by the new acquisitions to low-cost production facilities in China. Second, this maker of famous brands like Mixmaster and Oster is rolling out new products. And it is expanding through new distribution agreements in Latin America, the Far East, and Europe. It also plans more acquisitions. Third, Chainsaw Al is still not finished cutting costs at the original Sunbeam. Vital stats: The company has a forward price earnings ratio of about 25, compared to a long-term growth rate of around 20%, according to IBES International (http://www.ibes.com/). * Furniture Brands International (NYSE: FBN) Shares of the nation's largest residential furniture maker also ran up quite a bit recently, in part because of positive reviews from Merrill Lynch. So it might pay to wait for all that excitement to die down. Afterwards, there should be room for a lot more growth in this stock, says analyst John Baugh, of Wheat First Union. For one thing, the recent refinancing boom has put a lot of extra money in the hands of homeowners. And as with the last refinance boom in 1992, this one should spark furniture sales. Baugh is also bullish on Furniture Brands because boomers are moving into the years where they should buy more furniture. What's more, new homes these days tend to be a lot bigger. And more people are buying second homes. A recent alliance with furniture seller Haverty Furniture should help, as well. The deal will give Furniture brands half of Haverty's floor space, up from the current 18%. Vital stats: The stock has a forward p/e of 20.7 and a consensus growth rate of 18.5%, according to IBES. * Encore Wire (NASDAQ: WIRE) All those new homes going up have to be wired, of course. And that should help this Texas-based company, which gets just under half its revenue from demand for use in residential buildings. (The other half comes from use in commercial buildings.) But strong demand is not all that is driving earnings at Encore Wire, says Southwest Securities analyst Ozarslan Tangun. Earnings will also get a boost from a cost cutting campaign that will bring on line new facilities to produce both wire and the plastic that covers. "In the second half of this year and next year, we should see substantial improvements in the cost structure," says Tangun. Vital stats: Encore Wire has a forward p/e of about 11 compared to a long-term growth rate of 20%, according to IBES.