Housing/Building Stocks

[RetireeRobert]

They been pummelled. Lowes today projected 10% lower earnings. Lowes stock is on sale now at $22-$23.

Time to start looking into strong companies in housing/building while the blood is starting to run?

[mja]

I was just thinking about this as well. I've been thinking of reallocating my 403b (at Fidelity), and noticed that my real estate choice, FRESX, has been beaten down pretty well. I don't own any real estate, and wont for some time, so that's my best way to add a slice.

I didn't want to be a dirty market timer, but I didn't want to get in and have it continue sliding. I'm wondering if I should make the change soon though....

[RetireeRobert]

Quote:

Originally Posted by mja I was just thinking about this as well. I've been thinking of reallocating my 403b (at Fidelity), and noticed that my real estate choice, FRESX, has been beaten down pretty well. I don't own any real estate, and wont for some time, so that's my best way to add a slice. I didn't want to be a dirty market timer, but I didn't want to get in and have it continue sliding. I'm wondering if I should make the change soon though....

You are in 403b and can do you reallocatting with no tax consequences. That's one benefit. And you could average your way in with 3 or 4 or 5 transactions for the real estate fund choice to get to your desired allocation amount.

[twaddle]

You can buy XHB if you think the worst is over. The index is down 42% this year. I think the retailers will probably continue to get hurt, but the builders have become pretty defensive and should stop bleeding soon.

[haha]

Quote:

Originally Posted by mja I didn't want to be a dirty market timer, but I didn't want to get in and have it continue sliding.

Doesn't that just suck? God didn't make markets right.

Ha

[al_bundy]

i read a story off a financial site link that the last few years were the best for housing stocks in history in terms of profitability and gross margins. chances are that when they recover we won't see performance like this for at least a few decades

[RetireeRobert]

Quote:

Originally Posted by al_bundy i read a story off a financial site link that the last few years were the best for housing stocks in history in terms of profitability and gross margins. chances are that when they recover we won't see performance like this for at least a few decades

What a Lowes or Home Depot?

[RetireeRobert]

Quote:

Originally Posted by RetireeRobert What a Lowes or Home Depot?

Question should be "what about a Lowes or Home Depot type stock?"

[terminator]

I think Lowes/HD are different than homebuilders/mortgage companies. The housing boom was akin to selling a razor for the homebuilders and mortgage companies, but long-term more of a razor blade for the home retailers IMHO since all of those new homes built in the boom will still be fixed/maintained. That's longer term though -- I wouldn't see any reason to rush out and invest in LOW or HD since their near-term prospects aren't anything special. JMHO.

[al_bundy]

you will have to check, but the article i read said that historically the homebuilders had single digit gross margins. the last few years of double digit gross margins is a historical oddity and we are going to see a reversion to the mean.

i haven't looked, but you can check this by going to the builder's website and going through the historical financials

[RetireeRobert]

Quote:

Originally Posted by terminator I think Lowes/HD are different than homebuilders/mortgage companies. The housing boom was akin to selling a razor for the homebuilders and mortgage companies, but long-term more of a razor blade for the home retailers IMHO since all of those new homes built in the boom will still be fixed/maintained. That's longer term though -- I wouldn't see any reason to rush out and invest in LOW or HD since their near-term prospects aren't anything special. JMHO.

Lowes was down close to $22 today, that's off about 50% from its high. It has excellent and strong financials, but a cloudy nearterm earnings outlook---that is earnings down maybe 10%. But is that so bad? For the longterm investor, it may warrant attention. If one can buy it at another buck or two off at $20-$21, or even now at $22, and stash it away for 5 to 10 years or longer, I think one might be happy with the results.

[terminator]

Quote:

Originally Posted by RetireeRobert Lowes was down close to $22 today, that's off about 50% from its high. It has excellent and strong financials, but a cloudy nearterm earnings outlook---that is earnings down maybe 10%. But is that so bad? For the longterm investor, it may warrant attention. If one can buy it at another buck or two off at $20-$21, or even now at $22, and stash it away for 5 to 10 years or longer, I think one might be happy with the results.

I completely agree . . . I just wouldn't be surprised if it were the same price in Nov of 2008. Long term I don't think it matters whether you buy it today or next year.

[RetireeRobert]

Quote:

Originally Posted by terminator I completely agree . . . I just wouldn't be surprised if it were the same price in Nov of 2008. Long term I don't think it matters whether you buy it today or next year.

Yea, LOW is not exactly the most volatile of stocks is it. I don't know if I would count on it being in the low $20's stock price for a whole year, but maybe into early 2008.

At any rate, if I really knew, I would be fabulously rich not only from knowing exactly when to make my own investments, but also from selling my guru advice. I am not fabulously rich, alas.

But it is looking like a reasonable price at current levels for a going business. Maybe average into a LOW position over the next 3 to 5 months with 3 or 4 transactions starting at the low $20's, getting down maybe to the high teens on a big big market selloff?

Of course, if this is the start of the next Great Depression, then.......

[clifp]

Quote:

Originally Posted by RetireeRobert Yea, LOW is not exactly the most volatile of stocks is it. I don't know if I would count on it being in the low $20's stock price for a whole year, but maybe into early 2008. At any rate, if I really knew, I would be fabulously rich not only from knowing exactly when to make my own investments, but also from selling my guru advice. I am not fabulously rich, alas.

Let me know when you get fabulously rich, I'd like to be in the selling my advice business rather than giving it away free to random people on the internet. OTOH, free is probably exactly what my advice is worth.

With the strong caveat that I have not spent anytime looking at eithe HD or LOW's financially, my biggest problem with either Home Depot or Lowe's is while I am reasonably confident that one of them will be the biggest home repair retailer in the next 5 years I don't know who the winner will be.

Baring some major screw ups I am quite sure the Walmart will be the biggest retailer, Starbuck the biggest coffee shop, and Costco the biggest wherehouse retailer. I also expect them to be the most profitable. Unfortunately in the case of Costco I think the stock price reflects that prospect.

It seems to me with both LOW and HD being competent competitors neither one maybe able to make extraordinary profits,when the home repair business gets out of this slump.


Still I like bottom fishing her. If anybody has insight on why HD is better than LOWs or vice versus or why they both can prosper I'd be interesting in hearing others views, since I own no retailers outside of index funds.

[kcowan]

Quote:

Originally Posted by clifp Costco the biggest wherehouse retailer.

I don't know if this mispelling was intentional but I think it is a great term for them: "Where have they put it now?!"

Like clifp, I have no retailers otuside funds/index and I worry that their future is going to be rough during the housing construction slump. It may be more attracive to move to a new home at a distressed price than to continue to fix up the current one.

[cute fuzzy bunny]

Home depot has had some pretty serious management problems and cut their costs a little too sharply. From a customer perspective, I've all but given up on HD. The stores I've been in are a shambles. Lots of empty spots on the shelves from poor stocking. So many lights are turned off I almost want to bring a flashlight with me. Evaporative cooling instead of the A/C that Lowes has. And they wont get rid of their crap wood, they pile it up in the front of the stack hoping someone will take it, so if you want some wood that isnt all cracked and bent you have to set aside 25 2x4's to get to the "good" ones.

People fix their houses up in up markets. I dont think we're going to see a lot of upgrading getting done for a while...

[kcowan]

Quote:

Originally Posted by cute fuzzy bunny People fix their houses up in up markets. I dont think we're going to see a lot of upgrading getting done for a while...

Hey CFB how did your projects end up? I recall you had an aggressive plan for your new place.

[al_bundy]

i swear some people here must be shills working on wall street hyping stocks that are soon to be worthless or close to worthless.

i remember in 2000 someone on CNBC said Cisco was a good buy at $60 because it was 30% below it's all time high. It's at $30 seven years later and a lot of the companies that were supposed to take over the world 7 years ago are long gone. Telecom, the homebuilders of the 1990's are still shadows of their former selves. just like the telecom companies had to compete with their late 1990's and 2000 inventory until 2003 or 2004, the homebuilders will be competing with their inventory from 2004, 2005 and 2006 for years to come. with the biggest difference being that network switches can become obsolete pretty fast, not so with homes.

and cisco made a fortune by decrlaring any switch or router bought at auction as being out of support and by charging almost the entire retail price to support it. can't do it with homes.

[RetireeRobert]

Quote:

Originally Posted by clifp Still I like bottom fishing her. If anybody has insight on why HD is better than LOWs or vice versus or why they both can prosper I'd be interesting in hearing others views, since I own no retailers outside of index funds.

Well some stats on each: HD LOW

Total Revenue $80B $48B
PE(TTM) 11 11
Debt/Equity Ratio 30.57% 20.81%
Profit Margin 5.58% 6.24%
Earnings Growth-5Yr 16.65% 25.34%
Revenue Growth (TTM) -1.42% +2.07%
Dividend Rate 3.21% 1.45%
Price/Sales Ratio .66 .75
Return on Equity 5 yr Avg 21.28% 20.35%

So they are a lot alike financially, but with some notable differences.

I guess I would favor Low for the lower debt/equity ratio, the higher 5 year earnings growth rate, the higher TTM Revenue growth, similar ROE 5yr rates, and the fact it IS a smaller company ($48B sales vs HD $80B sales---and they have fewer actual stores).

Plus I agree with CFB about personal shopping experiences at the two chains. I like shopping at LOW better than at HD.

I believe both are selling at PE ratios at the low end of their historical PE ranges for the last (at least) 10 years. I doubt either of these stocks is soon going to be "close to worthless" given the above data.

For those looking for some retail coverage in their portfolios, LOW and/or HD look quite reasonably priced for going concerns with excellent financials.

[brewer12345]

I have not done my due diligence on the name yet, but I think MHK is worthy of consideration if you want to bottom fish quality stuff that you would be willing to hold for the duration.

But it might be 5 years before these stocks really make money. If you are not the patient sort, might not be the best choice.