This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Builders Have Further to Fall

Homebuilder stocks continue to be slammed, and gauging just how far they may fall is getting ever-more difficult.

In the past, the thinking was that you should buy homebuilder stocks when they trade near book value, because historically the stocks head up from there. So long as builders made money from selling homes, or land values went up, the book value would also increase and so would stock prices, the theory held.

That model has been blown up.

The entire homebuilding sector is in danger of reporting losses for the year because of falling housing prices and high inventory levels. At the same time, land values continue to drop, requiring builders to record large impairment charges. Both issues further cut book value at the companies.

(As a reminder, a stock's book value is simply the stated value of shareholders equity on the balance sheet, divided by the number of shares.)

"These stocks could have a 10% to 15% leg down again because book value keeps falling. It is a moving target," says an analyst at a hedge fund that is shorting the sector.

Last week, Lennar (LEN - Get Report) and KB Home (KBH - Get Report) set the tone for the ugly results ahead for the sector, as both firms reported unexpected quarterly losses because of large land impairments, which eroded book value.

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
CHCI $0.70 4.49%
KBH $14.48 -2.00%
HOV $3.03 -2.26%
MDC $26.86 -1.00%
LEN $45.32 -2.31%


DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs