The markets kept RealMoney's bloggers moving this past week, and once again, we'd like to share the Best of the Blogs with TheStreet.com readers. As always, these posts represent the best our writers offer each trading day.This week, take a look at Jim Cramer's take on Yahoo!'s multiple, Rev Shark on sitting still, Steve Smith on homebuilder options and Tony Crescenzi on what the slower home sales mean.
Cramer's Blog: Yahoo! Serves as Multiple BellwetherOriginally published 03/23/2006 9:03 AM EST Is 50 times earnings a bargain? When a company's growing at 30%, you bet it is. That's why I am watching this upgrade of Yahoo! ( YHOO) by UBS. Those of us who own Yahoo! have been blown away by the straight-line decline of the thing. But the decline stopped at the beginning of March, and it has created the appearance of a floor. I believe the decline, which is so related to the multiple contraction that has afflicted the Broadcom ( BRCM)/ Marvell ( MRVL) complex as well as Apple ( AAPL), could be coming to an end. The problem is, of course, you can't get a value guy to nibble at 50 times earnings, and the momentum guys have moved on and aren't coming back until you get another quarter. That's why this upgrade is so intriguing right here. Near the end of the quarter, a sense that business didn't decline, a sense that revenue is still growing faster than just about every other company, that should make Yahoo! right. Watch this stock. It may hold the key to the end of the multiple contraction. But if it can't go past $32, there's no ending and more pain for so many of the 40-50 times earnings plays. At the time of publication, Cramer was long Yahoo!.
Rev Shark's Diary: Don't Just Do Something -- Sit There!Originally published 3/23/2006 11:38 AM EST Traders have a tendency to believe that good trading means that they stay in constant motion. After all, sitting and doing nothing is what those boring, underperforming, long-term buy-and-hold investors do. Real traders trade, and if you aren't busy, you must be doing something wrong. Unfortunately, this bias for action means that many traders do not develop the ability to ignore a stock. Ignoring a stock you are holding that is doing nothing is quite often a very good strategic move. There are very few stocks that instantaneously do what we hope they will do. They will usually dance around a bit, take a nap, tease us and play games while they very grudgingly do what we hope they will. If you focus too much on this meaningless action, you quite often will be prodded into taking action you regret. The best way to deal with micromanaging positions is to simply learn how to ignore them when they are doing nothing of significance. On any given day, the great bulk of stocks are simply moving around randomly. You might want to deal with them if you have concerns about the broader market, but otherwise your best bet is to simply ignore the noise. I find that simply holding a lot of positions is one of the best ways for me to ignore meaningless action. I simply don't have time to worry about a stock that is up or down 30 cents. I spend my time and energy dealing with those that are making the biggest moves up or down. The stocks that are doing little, I ignore, and quite often I'm pleasantly surprised when they finally do what they are supposed to. Ignoring stocks doesn't sound like something an aggressive trader would do, but it is key if you want to hold stocks for outsized gains. You can make some money micromanaging stocks in the very short term, but if you want the big profits, you have to learn how to ignore the noise.
Steve Smith's Blog: Strategizing on HomebuildersOriginally published 03/22/2006 12:22 PM Homebuilders are settling into a range, with many of the names such as Beazer ( BZH), Pulte Homes ( PHM), Lennar ( LEN) and KB Home ( KBH), which reports earnings after the close today, all sitting right at their 30-day moving averages. Adam Warner notes today on his blog that the sector, as represented by the Philadelphia Housing Index (HGX), has a tendency to gravitate toward the 50-day moving average. His suggestion, which he acknowledges is more easily said than done, is to "buy volatility when it sits right at the number and then fade as it deviates." Warner has been working some calendar spreads, which gives him a little positive gamma and benefits from an increase in implied volatility, in the group for the past few weeks. One approach that I'll be taking a closer look at might be some paired positions; right now Centex ( CTX) is trading about 6% below its 30-day moving average, while Toll ( TOL) is trading about 5% above the 30-day MA. The big danger, of course, is that I am assuming a reversion to the mean will outweigh the fact that some builders are better positioned and will outperform others. But I believe that in the near term, say, four to six weeks, as the housing debate continues to cause these stocks to stew, it might work. Drug names are leading the most active options with Bristol-Myers Squibb ( BMY) options already trading more than 8 times their average daily volume. A trade of note is in the January '08 LEAPS, in which the $25 call has traded more than 5,000 contracts thus far.
Tony Crescenzi's Blog: Soft New-Home Sales Reduce Risk of 5.25%Originally published 03/24/2006 11:14 AM As I indicated Thursday, the strength in the existing-home sales report was misleading, given the lagging nature of the report. The new-home sales report is more current, so the weakness that was reported today is more important. Remember, existing-home sales are counted upon the closing of a home sale, which could take up to several months to commence following the contract signing for the sale, but new-home sales are counted at contract signing, the very early stage of the process. New-home sales are therefore likely to correlate strongly with data on mortgage applications for home purchases, which, as I have been noting, have been very weak of late, falling about 10% in February compared to January and running below their one-year average in 13 of the past 14 weeks by a depth not seen since data were first collected by the Mortgage Bankers Association in 1990. New-home sales fell 10.5% in February, matching the largest percentage decline since April 1997. Sales fell to a pace of 1.080 million, much lower than forecasts for a pace of 1.20 million and the lowest level since May 2003. The slow pace of sales is boosting the number of homes for sale, which reached a record 548,000 in February, an increase of 23,000 from the previous month. This boosted the inventory-to-sales ratio to 6.3 months from 5.3 months the previous month, to the highest level in 10 years and about two months above the 10-year average. High inventories and slowing sales are impacting prices. The median price fell to $230,000 in February, 2.9% below a year ago and 5.5% below the peak of $243,900 set last October. The bulk of the sales weakness was in the West, where sales fell 29.4% in February (monthly change), the largest percentage decline since January 1982. The West Coast experienced rainy conditions during the month, and this may have had an impact. Sales rose in the Northeast and the Midwest by an amount that nearly offset a decrease of sales in the South. Weaker sales are resulting from:
- Housing affordability at a 14-year low Rising mortgage rates Record price-to-rent ratio Reduced laxity in lending standards Rising home values boosting insurance costs, real estate taxes Slower price growth causing spec money to flee