Eddie Lampert is buying homebuilder stocks - should we follow along?
Answers
4085 points
EthanR answered one year ago …
Yes, if you have a long term horizon! However, let me offer some caveats. I know it is tempting when TOL sells for $60 in 2005 and even $35 a little over a year ago to think it is cheap at $19 today. And perhaps it is. But it could be awhile before it starts to move higher, and your money might be better off in a stronger sector until things begin to turn around. I see no evidence that this sector is currently performing well.
Also, when you feel that the time is right, run some comparisons for relative strength among the many homebuilder stocks. You can do that on yahoo very easily. For example, among DHI, CTX, BZH, KBH, and TOL, who has performed the best in the last three months? Answer: TOL. There is almost a 35% difference in the performance of TOL vs CTX over that time span. So you can see that unless you are going to buy the total homebuilder ETF, it can make a huge difference in your results, depending on which stock or stocks you buy. Good luck!
699 points
7million7years answered one year ago …
What other investment horizon is there, other than long term!
Time to find which home builders are selling at a huge discount to their long-term earning potential. Can be very hard to do in cyclic businesses - their underlying profitability waxes and wanes with the market for their 'stock'.
Remember: just because a stock IS (say $19) and WAS ($60), it doesn't say anything about how much the stock SHOULD be ...
269 points
stocktraderdan answered one year ago …
You shouldn't follow a stock tip (lead) if you're not certain what criteria was used to determine the buy signal. You also don't know what his portfolio management strategy is.
The reason why most investors who take tips lose money in the market is because when the stock goes against them, they don't have justification to stay in the game. They close their position before it shoots up. On the flip side of that, if the stock turns against them and the investor holds for dear life, they may be unaware that the tipster already closed his position.
If you are going to invest in a falling stock you may want to verify it is fundamentally sound. Currently TOL has negative earnings so it becomes difficult to assess its estimated value to ensure you are getting a deal.
Don't jump into the stock until you come up with your own profit/loss target and money management strategy.
3963 points
MNSL answered one year ago …
Above answers are very useful for investors. We can see their experience in the market the way they write. Any way I like to add some more.
Currently forestry stocks, home building stocks all coming down badly through out the world. I think there will not be any strong demand for products in this sector for next 05 years and still over priced in some markets. Why don’t you identify some stocks in other sectors at the early stage to get above average return in next o5 years?
As Ethan said it is better to invest in a strong sector with good fundamentals such as strong demand for product, higher earnings etc at least for next 05 years.
2775 points
Oldman answered one year ago …
The only home-builder that won't be penalized by the borrowings and land sale valuations is a rare & pricey security labelled NVR. It does not buy land or do "development" deals. It's off its high, but the family that runs it holds a great deal of the stock. All the above notes are good for the "ordinary" builders' stocks, and even the ETF (ITB) is within a few percent of its low, but these are long-term holdings (5-10 years), and they can go to zero like Levitt and probably, Lennar or Beazer..
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