Aaron Katsman
www.IsraelNewsletter.com
I just got an email from a friend of mine, and as a way of showing that nobody listens to me, he asked the famous riddle. If a tree falls in a forest with no one to hear it, then does it make a sound? While I usually try and stick to posting about Israeli stocks, I couldn’t resist taking a shot at the Bank of America Securities analyst downgrade of the homebuilders. This seems like one of those things that’s just completely irrelevant.
Hovnanian Enterprises(HOV) was among the stocks mentioned in the report that was cut to neutral from a buy rating. That initial buy rating was issued on the 1st of Feb. ’07. At that time the stock was trading in the mid 30′s. The broker said it senses that cancellations jumped across the industry in recent weeks as lenders pulled commitments from buyers already in backlog and new buyers failed to qualify. Where has this analyst been hanging out for the last 6 months? They waited for the stock to drop more than 60%, and only then do they issue a downgrade. They believe that the homebuilding business has been an attractive space over the last half year, and only now do they sense some trouble? Puzzling isn’t it? And Barron’s has an issue with Cramer? At least he is in the ballpark.
With such a “gutsy” call, I think that there will be an interesting play on the homebuilders in about 3 months. If there will be any short-term move to the upside in this sector, I am sure it will be limited because there is the tax-loss selling cloud that looms over this sector. But as we approach year end, and everyone has cleaned out their portfolios by dumping losers, watch for the homebuilders to regain strength, and I wouldn’t be at all surprised to see companies like Honvanian or Toll Brothers(TOL) become big gainers in ’08.
Please see our Disclaimer HERE.
Disclosure: Author has no position in either HOV or TOL as of 8/21/07.
Like what you see? Sign up to receive daily updates from IsraelNewsletter here
Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
About Aaron Katsman
You are obviously not in tune with the reality of the housing market in this country. I follow it on a daily basis and I can tell you we are not even close to bottoming out yet. Besides housing prices still being way too high there is a lot of excessive inventory that is not even accounted for ie. cancellations on houses previously contracted for. Add to that the new mortgage regulations which will eliminated a huge percentage of potential buyers. At the same time builders have continured to build many projects that were permitted years back.
The reality is these homebuilders have much more painto experience and downside to their stock prices. Any rebound will have to wait til after 2009.
Hovnanian may file for bankruptcy this year and you are claiming it could be a big gainer in 2008. That is funny. Apparently you do not understand the magnitude of the housing bubble, the current state of housing, and the repercussions of the deflation. Homebuilder stocks are not value plays and the “book value” argument is a farce. How will that book value look after the “assets” continue to be written down in combination with weakening sales and profit margins?
The downgrade by Oppenheim was a joke (Ivy Zelman was the only housing analyst that was not a Wall Street shill) but Cramer is not without blame. Sure he is in the ballpark now after he pumped the hell out of the homebuilders while they steadily declined. Then he did his normal routine of becoming bearish way after the fact. Anybody that was foolish enough to follow him sustained huge losses. Here I will save you some research:
http://www.youtube.com/watch?v=f5zAvh-iFfU
There are already enough naive Cramer apologists out there.