D.R. Horton (DHI - Get Report) reported decent numbers Wednesday, and most importantly, its unit orders were up 28%. However, the bears are not writing about these orders the same way they commented on Toll's (TOL - Get Report). Horton delivered 50,000 homes, compared with 9,000 for Toll. Now, you tell me what's happening in the housing market.I don't think that many investors, not even the sell-side analysts, are aware that what really happened at Toll was a management mistake. They simply filled out existing communities too quickly last year. That maneuver gave them monster numbers then, but is a big problem today. Don't base your opinion of a $200 billion industry on Bob Toll's comments. Look at the entire group. Hmmm. Horton orders up 28%, Beazer ( BZH - Get Report) up 15%, Hovnanian ( HOV - Get Report) up 38% and Pulte ( PHM - Get Report) up 20%. What am I missing? Seems as if most of the large public builders are managing the current slowdown just fine. I know that the real estate bull market is over. I have been incorrectly forecasting this for five quarters now. It's about time. Housing demand and prices have flattened. But if you keep reporting that as news, you need to buy a clue. But, just as with the steel sector, high-quality housing stocks can trade up big in a soft landing. Don't get bummed by the incessant bearishness of the sound-bite shorts. The sector is too cheap not to own. Once again, if the sector implodes, the builders have index-type downside. If it undergoes a soft landing, another big trade into spring.
He wants you to sell builders because they are dropping. I want you to buy them for the same reason. Well, let's apply the same question to another stock. Should you sell Sears Holdings ( SHLD because the stock is plunging? Or is it a buy because the market does not get it? Sometimes, despite its "infinite wisdom," the market is wrong. I do not know how my homebuilder trade will work out. Finding the absolute bottom is a problem, not a benefit. I call it the "curse of the downtick." It tends to inhibit large positions, especially when they rally quickly. So I will continue to take the opposite side of the popular sound bite: "Avoid value stocks because they often get cheaper." Sometimes they do, sometimes they don't. I have now tired of laying out my risk/reward case for the builders and will leave them alone if the bears reciprocate.