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"The market is doing what it loves to do.” Lately, that means it is both fundamentally and technically very fickle and non-decisive. What the investor often forgets is that what has become a fact is-- in reality-- very creative fiction. The flow of fictional stories being told by Wall Street, the media and individual financial analysts are so compelling that the average Investor takes the hook, every time. That’s a fact and, for me, it is very sad.

The current position of the Home Building industry group, both US domestic and international, is quite low on my consensus rankings of over 200 industry groups. Therefore, I expect it (Home Builders) to begin to crumble again during the time frame of my anticipated pullback. Over the short-term, this industry group does definitely, qualify as "currently unfavorable" and the shares of its component companies should likely be avoided or shorted during anticipated bearish moves in the marketplace. However, over the longer-term I am quite positive. The oxymoron is, as always: Can you afford the risk / reward ratio and how is your insight to making timely investments? These companies are definitely not doing well in this current rally.

In the table below you will see why my approach of valuation offers six rather weak companies that I believe can profitable (on the short side) in the short to intermediate-term, however not necessarily now. Remember to be a bit patient before taking positions.

Valuation/Comparative Analytics Table: Home Builders

Stock

Cur. Price

My Target Price % Above (+) or Below (-) Cur. Price “Tweaked”

From its Bearish Inflection Point

PEG

P/E

Forward P/E Average of Low/High Estimates

Divergence (%) -then- “Tweaking” -to get- My Target Price % Multiplier

Comments / My Analytics / Weighting: Fundamental (40%) Technical (35%) Consensus (25%) / When my anticipated pullback occurs - lower prices definitely forecasted for all?

Beazer Homes (NYSE:BZH)

5.62

- 25% to - 45%

minus 0.65

n/a

n/a

+ 65%

but remaining negative

Obviously a very poor valuation and price projection.

Hovnanian Ent. (NYSE:HOV)

4.01

+ 20% to- 40%

minus

0.42

n/a

n/a

+ 45%

but remaining negative

Obviously a very poor valuation and price projection.

KB Home (NYSE:KBH)

13.8

- 25% to - 45%

minus

1.28

n/a

n/a

+ 65%

but remaining negative

Obviously a very poor valuation and price projection.

M I Homes (NYSE:MHO)

16.2

- 20% to - 35%

minus

1.18

n/a

36.7

+ 92%

Obviously a very poor valuation and price projection.

Meritage Homes (NYSE:MTH)

22.9

- 35% to - 75%

23.4

very high

14.3

37.6

+ 232%

Obviously a very poor valuation and price projection.

Standard Pacific (NYSE:SPF)

4.44

- 40% to - 80%

10.9

very high

13.3

44.4

+ 305%

Obviously a very poor valuation and price projection.

Notes: Fundamental valuation, data in today’s marketplace requires that I look at the numbers as being either realistic or creative – which more recently is using new / funny math. Because of the valuation data inconsistencies, I have adopted an additional procedure that I call “Tweaking the Results." This procedure is sometimes needed to get me back to realistic valuations. It requires having an eye on the short and intermediate-term company’s price movement, and is definitely not a part of my rather unique technical analysis. My valuations also consider the two-year - forward P/E data. Using this procedure produces very accurate analytics for decisions at bullish and bearish inflection points.

Most financial analysts determine the price target range by estimating a future earnings per share and then applying a price-to-earnings multiple, also known as the P/E ratio. I prefer to calculate price targets (high / low) for both the current and next fiscal year by applying the stock's present multiple to the average analyst's estimates and follow with some foxy "tweaking" of the results.

Further, I believe that there should be just two aspects of fundamental valuation. They are now and later, which translates to 1-2 years and more than three years. Obviously, the further out we try to project earnings and cash flow, the more inaccurate the data becomes. That is why I do my valuations rather frequently.

PEGs: You will note that these companies are carrying low PEG ratios with the exception of Walter Energy. Normally, that is typical of Coal and does not mean much to my current valuations however I am quite favorable impressed.

For a current (up to the minute) chart of these 6 Home Builders and my “Bellwether” Indicators -- 5 Indices, 12 Sectors and 23 other high profile Companies. Click here and then scroll down. You may also want to visit my InstaBlog for my missive – “Message to “Followers.”

Since coming out of retirement in October 2007, I have witnessed a vast change in the valuation practices being offered by many financial analysts. The shenanigans and other accounting practice games were active before, but have now reached a new height of deception. The general public is often lazy about learning and perhaps naive. The financial analysts know that these characteristics exist and now are taking advantage. It's simple, the average Investor is asking to be told that, “all is ok” so that is what they are being given. Honest and forthright information and data is a thing of the past.

My Wrap

While I believe the general market may be in for a pullback, the prevailing question from most investors is: How big will it be? Do I hold my current positions or do I sell? Is there a profitable alternative? Etc. The answer will be obviously quite clear when the pullback is over but an old axiom tells us to be prudent in times like this. You might want to remember that, cash is always an excellent safe harbor. However, if you are a proactive investor, taking bearish positions may also be wise.

This is just another one of many bellwether industry groups to help identify candidates for buying and for short selling as the marketplace cycles from bull to bear and back again - over, and over, and over again.

The good news about the marketplace is that we are presented frequent and conservative / low risk opportunities to invest long, invest short or to simply to hold cash. For me, this is investing wisely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 6 Timely Valuations for Homebuilders