NEW YORK (RealMoneyPro) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares RealMoney Pro readers in his daily trading diary.
This past week, Kass sees car-rental stocks as "value traps," ventures into Yahoo! shares (again) and makes sense of housing starts and sales and manufacturing activity.
Put the Brakes on Car Rental Stocks
Originally published on May 19 at 10:30 a.m. EDT
Rental-car stocks such as Hertz Global (HTZ) and Avis Budget (CAR) have been market losers over the past 12 to 18 months, despite attracting the interest of several activist hedge funds. This has led me to initiate an analysis over the last few weeks of the industry in the hope of finding value.
Unfortunately, my analysis led me to the investment conclusion that rental-car equities are value traps because the industry's business model, competitive landscape and secular growth prospects are being upended by peer-based services Uber and Lyft. I would avoid CAR and HTZ, despite their apparently cheap share prices.
Housing Starts Rebound, Boosting Treasury Yields
Originally published on May 19 at 9:59 a.m. EDT
Housing starts in April totaled 1.135 million, well above expectations of 1.015 million and up from 944,000 in March -- and it's the highest reading since 2007. Both housing components -- single-family homes and multifamily dwellings -- contributed to the jump. Single-family starts rose by 105,000 starts to 733,000, while multifamily starts rose by 86,000 to 402,000.
The permit side also saw a jump to 1.143 million from 1.038 million in March, but that was mostly for multifamily units. Single-family permits rose by 22,000 to 666,000 -- a touch above the 12-month average of 650,000 -- but multifamily permitting was up by 81,000 to its highest level since 2008.
Bottom line, there was a weather rebound in the Northeast and Midwest for starts, but now we're just back to pre-winter trends.
Smoothing out the January-through-April starts figure in the Northeast puts the four-month average at 109,000 vs. 113,000 in December and 107,000 in November.
For the Midwest, the four-month average is 138,000 vs. 168,000 in December and 172,000 in November.
For the South, unrelated to weather, starts totaled 503,000 vs. 512,000 in March and 509,000 in February.
In the West, starts jumped to 278,000 from 200,000 in March and 243,000 in February, but they were at 293,000 in January.
Looking at overall starts over the past four months (which smooths out weather issues in the seasonal adjustments), those averaged 1.015 million vs. 1.080 million in December, 1.007 million in November and 1.079 million in October. The 12-month average is 1.019 million overall starts.
It was good to see a sharp snapback in starts after the sub-1 million readings in the prior two months, but if we smooth out the winter influence, starts are just back to pre-winter trends. For single-family permits, as stated, the figures are running about in line with the 12-month average, while multifamily permits remain the particular bright spot. The 477,000 level in April handily beats the 12-month average of 416,000.
Just prior to the release of the data, the 10-year Treasury yield was getting back all of what it lost in response to this morning's European Central Bank quantitive easing-timing news. Combine that with an upside surprise to starts and the 10-year yield now stands at around 2.26% to 2.27%, up 12 basis points from Friday's close.
Kass Katch: Buy Yahoo!, Part Deux
Originally published on May 20 at 9:31 a.m. EDT
I am once again buying Yahoo! (YHOO) shares (under $42 in premarket trading) based on the opportunity presented in the stock's decline on Tuesday.
With shares of YHOO and China's Alibaba Group (BABA) trading lower and given the ambiguous nature of the IRS statement on Yahoo!'s proposed spinoff of its BABA stake, the upside-downside ratio is finally compelling.
It's important to note that even if the IRS spinout ruling is agreed to (only 33% chance, from my perch), the value of the residual Yahoo! is now slightly negative.
First, a bit of history.
I know Yahoo! well from an analytical understanding. Last year, Yahoo was made a Kass Katch in late September at about $40.
My principal focus was a "sum-of-the-parts" analysis. My main catalyst at the time was an expected tax-free exchange of Yahoo!'s BABA holdings, which was indeed announced shortly after my buy. Within four or five weeks, I sold out the stock for a near $6-a-share gain.
Yahoo!'s shares continued rising toward $52 after I sold -- until Alibaba recorded an earnings and sales miss. Then the stock came back to earth. At that time (when the shares were in the high $40s to low $50s), I debated several bulls like Eric Jackson and suggested Yahoo! should be avoided because of a lack of transparency and opaqueness at Alibaba.