Good story but is this really a surprise to anyone?
in the "I told you " category I came on here months ago saying there were energy companies selling at well below their net asset values and wouldnt it be smarter to buy an APPRECIATING asset vs A DEPRECIATING one when you can buy the appreciating asset cheaper (and they have earnings) I gave XEC and EAC as examples maybe DVN
HEARD ON THE STREET Rule of Thumb Hammered Judging Home Builders By Book Value Can Sting As Write-Downs Mount By MICHAEL CORKERY and KAREN RICHARDSON July 9, 2007; Page C1
A year ago, home-building companies looked like bargains. Looks can be deceiving.
Many companies were trading near book value -- a rough estimation of what they would be worth in liquidation and typically a green light to investors to buy the stocks. Turns out it was a faulty signal, and one that is flashing to hopeful investors again.
Value-seeking investors bought into the sector, and the builders' stocks surged toward the end of last year. But the subprime debacle and a rising supply of unsold homes have sent home-builder shares plummeting, erasing most of their gains.
So, this time around, investors may be gun shy about following the old rule of thumb of buying the home builders at book value and selling after the shares have appreciated to at least twice book value.
The problem is that book value is more of a moving target than a sure sign of a bargain. Book value is a company's assets minus its liabilities. Typically for builders, their largest asset is land, which in some cases, amid falling home prices, is no longer worth what they paid for it. That has forced builders to write down the land on their books. Meantime, the builders are still paying down the debt that they used to buy much of the land.
At the end of June, for instance, home builders were trading at 1.1 times book, with some large companies, such as Beazer Homes USA Inc. and Hovnanian Enterprises Inc., going as low a multiple as 0.6, or 60% of book value, according to Morgan Stanley.