The second area is housing. Yesterday, Lennar (LEN) reported, and the market liked what it heard. That is pretty interesting, given how Toll Brothers (TOL) wasn't all that much different when it reported a few weeks ago and the market didn't like what it heard.
What's changed? Lennar told a compelling story that said: "Look, the Federal Reserve has won, home prices are going up too high and now they have cooled off while demand has stayed pretty consistent, but supply has fallen behind." The imbalance remains, and Lennar has the land and the homes to meet that demand imbalance. It's been a terrific, compelling story of a homebuilder that is going to make a lot of money per home. That thesis allows for some conventional price-to-earnings multiple to come in play. The company has about $2.50 per share in earnings power, and it has growth characteristics and margin-improvement possibilities that are better than the average stock in the S&P 500. Given all this, it wouldn't be a stretch to see it head to $40.
Now, this whole group isn't as good as Lennar, which has come out as the standard bearer of the industry after this difficult period. But this group has been slumbering for some time, and if Lennar goes to $40 than Pulte (PHM) and D.R. Horton (DHI) won't lag too far behind.
Third group? Retail. This group has done nothing for several months now, and we can make a judgment that the holiday season hasn't been a rip-snorter in part because of calendar issues, but also because of secular shift away from the traditional discounters in favor of Amazon (AMZN). That said, the turnarounds in GameStop (GME) and Best Buy (BBY) should accelerate because of new product in 2014 and Macy's (M) has already told you things are going great. The unseasonably cold weather has been fabulous for North Face maker VF Corp. (VFC).They all work. Finally we come to groups four and five: oil and airlines. These are the proverbial oil and water of this market, but hear me out. We have now all pretty much collectively decided that the only oil company worth buying is Exxon Mobil (XOM), because that's the company that's more of a bank than an oil company. Market players all seem to think that domestic oils have had their day. I think that's ridiculous. If the economy is really coming back, then oil is going higher, not lower. The companies that are repositories of oil and gas -- ConocoPhillips (COP), EOG (EOG), United Continental (UAL), Noble Energy (NBL) and their ilk have come down hard. Yes, day rates for rigs have come off; witness the hideous action in Ensco (ESV) yesterday. But the worldwide price is what drives Schlumberger (SLB) and National-Oilwell Varco (NOV). I think they'll work.
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