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Monday, April 7, 2008

If You Build It

"Home Price Hitting New Low!!"

"Foreclosure Rate Is Growing!!"

"Construction Rate Slowest!!"

With all these disappointing headline mounting you would think the ground zero of all these - the home builder company would be all filing for bankrupcy. On the contrary, despite the negative news and environment, shares of iShares Dow Jones US Home Construction(ITB), the ETF which tracks US home construction sector were up 20% so far this year from $16.94 in January to $20.21.

On one hand, people are betting that the home builder stocks had bottomed. On the other hand plans are in progress in congress to slow down foreclosure as well as prevent builder from bankruptcy. Let's take a look at the major home builders:

  • DR Horton Inc. (DHI): this is the largest builder in Unite State with 5 billion in market cap. Since reaching the $40 peak in January of 2006, it has lost as much as 75% to $9.78 in January but is now back at $15.71 per share. As of December the company has about $129 million in cash yet $1.2 billion in accounts payable.
  • Pulte Homes Inc. (PHM): the nation's second largest home builder had suffer similar casualty in stock price as its main competitor. Trading at $14.01 per share the company seems to be in better situation as its current asset of $8 billion is more than the current liability of $2.4 billion. Yet about $7 billion are inventory which the company need to know how to convert into cash in this touch market.
  • Toll Brothers Inc. (TOL): shares of the $3.6 billion dollar homebuilder have been up 46% from the January low. The company also has stronger balance sheet like Pulte Homes.
  • Lennar Corp. (LEN): despite industry wide depression, the company is still paying dividend of 16 cents per share for the quarter. Lennar has one of the strongest balance sheet among the builder with $677 million in cash and only $504 million in account payable. In addition the institutions bought 10 million shares in the latest quarter.
  • Centex Corporation (CTX): shares of the Dallas based homebuilder were as high as $79 per share back in January of 2006. At $23.7 it is still off by 70%. The institutions were bearish and sold 11 million shares in the latest quarter.
  • KB Home (KBH): the Los Angeles based residential construction company also has strong balance sheet and was able to declare quarterly dividend of 25 cents per share.
  • Hovnanian Enterprises Inc. (HOV): with huge inventory and little cash on hand the credit rating of the company was cut to junk by Moody in March. The institutions were also bearish and sold 9 million worth of shares in the latest quarter.