While I am still long PHM, I am looking towards other housing plays. I have been swing and day trading USG, OC and BCC to capture the suppliers, however I am looking at a more pure play. With the big downturn in copper because the Chinese New Year shutdown of demand, I think copper plays are great buys right now.
Yes, I understand there is very little copper pipes in construction now, but there is a lot of wiring which outweighs all other components of a house, even if all the waterlines were copper.
Also, i just wanted to post something to keep those stupid spam postings off the lead.
I am also looking for a housing-related play. What do you think about WY? I'd expect lumber suppliers to do well as the housing market continues to recover. The stock price hasn't moved up nearly as much as PHM. I took a quick look at their financials and they seem okay. The railroaders should also gain incremental revenues from housing growth but they are much more diversified. I am long PHM and CNI a couple of years now and both have performed well.
WY is good, I also like PCL for their lumber and land holdings. Railroads are a good trade and have been beaten down because the fall in coal. They will lose some when the pipelines are built to move oil out of the Dakotas. Also the Panama Canal widening will be complete which will move far east shipments directly to the east coast where they will be shipped via Norfolk Southern and CSX to the east coast markets. Currently these products are brought into the west coast and shipped east via UP and Burlington Northern. Personally, I think movements in the coal market and the Panama Canal will have a bigger impact on the rails then moving construction products.
I think you are getting off-track. The homebuilder story is multi-year and the fact that the group is about 10% off its highs is healthy. This is a beat and raise story .... More than ever this is about SALES, MARGINS, and Housing Starts. Spring is on the way. All we need is a good jobs report .. some momentum from Hovnanian on Wednes and Lennar later in the month, and we'll see new highs soon after.
I agree with you, but investors are placing the home builders over priced based on book value causing these corrections and analyst are seeing more value in the suppliers. From where I sit, the home builders stand to make more during the early stages of the recovery. But I can't fight the trends and willing to place short term bets on the suppliers while staying long on the builders.
Here is the thing, the last year USG was profitable we had 1,355,000 annual housing unit starts, now in 2012 we had 779,000. People may say USG has cut overhead and doesn't need the higher numbers to reach profitability, but in order to meet a higher demand they will have to increase their production facilities. Furthermore, there are more drywall manufacturers today than there was 6 years ago and there are fewer distribution wholesalers.
Builders on the other hand have reached profitability today, even with the lower housing unit numbers. The reasons for this are as follows:
1. There are fewer builders today reducing supply and competition.
2. Barriers for new builders to enter the market from licensing requirements to strict loan underwriting.
3. Building fewer homes allow builders to make higher margins with lower overhead and higher net profits. Most people don't realize that building is a numbers and overhead game. For example when I was building in the $250,000 range I could make more total profits limiting myself to 5 houses a year. Once I increased the number of houses, my overhead would go up and I needed to reach 8 houses a year to make the same amount I was making with 5. Then the extra liability and spec exposure would take me down with any downturn in the market.
4. Builders are realizing that building more doesn't mean higher profits and are building smarter.
We are going to need to see consolidation in the suppliers or some type of innovation that the International Code will adopt.