With all of the negativity surrounding HB's in the press and in this chat room it must be time to buy.
I believe Buffett said it best, "be fearful when others are greedy, and greedy when others are fearful."
Right now everyone seems mighty fearful of HB's. It's time to step up boys and girls.
I like to directly short the stock since it reduces the bid/ask spread, among other reasons. The liquidity of stocks is, IMHO, much greater than in options, especially thinly traded options. I suspect that MTH is fairly thinly traded on options.
Also on options - I go with a fairly distance expiration date since the short expiration ones usually expire out of the money for me.
The only put options that I've bought are in IRA accounts, since you can't short stocks in an IRA.
The options that I've got are all in mortgage brokers (CFC and DSL); I wish that I had put some of that money to work on home builders, but I'm not willing to close out those options due to the high transaction costs of doing so.
If you're looking at mortgage brokers and only have one to pick, go with DSL. Highly concentrated in CA, 100% ARMs in their holdings, >50% are negative amortization, nonperforming assets are skyrocketing (25% increase in May vs April; went from 1.04% to 1.30%), declining interest rate spread (at 3.03% end of May), decreased bad loan reserves last quarter so that they could come close to forecast earnings. There is no way on earth that they'll make forecast earnings this quarter; depending on how ugly their June numbers are, they may even have a loss for last quarter. If that happens, DSL will take a major league haircut. I loaded up on Nov 07 puts with a $65 strike price back when DSL was in low-mid 70s less than a month ago. Feb 08 puts weren't available, or I would've bought them. It's made some money for my IRA.
If one were to make bets on who remains(unreorganized) for the next real estate cycle that begin in say 2015:
notes are relative mind you (my bias is they are all good shorts but these less so?)
Toll, decent interest coverage, still decent gross margins and decent leverage ratio
my top 3 least worst
As a short, I have a limited timeframe that I operate in. I'm not looking several years down the road, because I'm not going to hold a short that long. Given that, I am looking for the most vulnerable HB stocks.
For me, long term, as a short, is 6 months.
Based on my screening of the bond market, MTH is a top target for shorting. I find that the bond market leads the stock market in letting you know which stocks are going to have big financial problems - ie chap 11/7 candidates.
The HBs who have worse bonds are TOA, HOV, BZH, KBH and SPF. TOA isn't worth shorting at this price, HOV is on the Reg SHO list, and I'm short the others.
I don't take anything personal in chat rooms and I have enjoyed our exchange as well.
Shall we continue ?
Of course I was selective in which airlines I referred to and the people who made money back then were the ones who were selective in choosing which airline stock to buy. I am selective as well in picking MTH over other builders. Many will fail, sadly costing their investors money.
As far as PE and book value eroding further I suspect that will be the case for another quarter or two. That's not the point I have been trying to make though. I think, perhaps mistakenly,that MTH will weather the storm much better than most. I also think we will always have a home building industry and that this segment of the economy will return to good times. A nation of 300 million with millions more joining us every year seems to bode well for the industry long term.
MTH is no get rich quick stock, but I think the rewards will be outsized for those willing to buy and forget, or average down, over the next year or two. If it takes longer, then it will take longer.
I have no doubt that the industry will recover as did the airline industry, and the oil industry for those of us old enough to remember when Houston and Dallas were full of "see through" buildings. Of course everyone back then thought the country was in great decline and people made the same comments and ridiculously dire predictions that some now say about the HB industry.
The real risk here, imo, isn't that the industry will recover, but whether or not MTH will be a part of it. I am betting that it will. Others disagree. That's why we have markets.
Cesium - "What charts are you looking at.This stock was at 50 a year ago." I'm afraid I don't pay much attention to those squiggilly wiggilly lines which are connected to nothing but the fleeting emotions of "Mr Market." As for the stock trading at 50 last year, that is precisely why I have an interest in the stock today. I believe, only my opinion, that MTH was overbought then and is oversold now.
Nothing's quite that easy.
Trends can turn on you. In the case of home builders, the financial trends are headed straight south which translates into poor stock performance. It's bad and getting uglier by the day for the housing industry. The industry is at the very least a year away from bottoming; probably longer.
That would be fine if the fundamentals supported your thinking.
Step back and ask yourself a few questions.
1 Is there a shortage or glut of housing?
2 Is it easier or more difficult for home buyers to qualify in comparison to 6 months ago?
3 What are other companies in the sector reporting for profits and outlook?
4 Have I visited any home builders' new construction sites? How's business?
You would be better off taking your money to vegas and putting it all on red or black at the roulette wheel. Putting money in home builders at this point in time is a 100% guaranteed capital loss for your taxes.
Your assessment is so rational and well thought out that you should expect at least two ignorant longs to post a negative response. It will look something like this:
Blah Blah Blah Blah Blah Texas! Blah Blah Blah Blah where will people live if they don't build brand new houses? Blah Blah Blah Blah more insanity about Texas. Blah Blah Blah last chance to buy cheap!
The best thing to do is add them to the ignore list.
Very nice day today !!
It is still not too late for all of you who are freaking out, and yes, I still think it is a strong buy.
Believe it or not we have always had business cycles and industries come in and out of favor. Western Civilization will continue and our expanding population, both legal and illegal, will live in houses. Geez everybody, take a deep breath.