Seeking Alpha
Profile| Send Message|
( followers)  

Bernanke paused last week to give Washington a chance to implement positive economic policy and take some of the burden off of the Fed. Next week's speech by President Obama could deliver results by helping the sector of the economy in most dire need, real estate. Several proposals have surfaced which could be funded relatively easily in the low rate environment engineered by the Fed. Specifically, trial balloons being floated suggest the administration 1) looks to help homeowners refinance their home loan rates, and 2) will tweak borrower lending standards to enable more people to qualify for purchases.

While we understand government policy leaks can go nowhere, we also find it coincidental that Obama recently met with Warren Buffet for "ideas" on how to jumpstart the economy. Buffet, in sync with the news flow from the White House, is publicly talking about the relationship between unemployment and housing. Buffet tells Charlie Rose in a April 15th interview:

“Unemployment will fall significantly, in my view, when we get back up to a million housing starts...Corporate America is doing fine in most areas. It’s not doing fine in things tied to residential construction. That won’t come back until we work off the excess inventory...The amount of excess inventory is not as high as people think, (the recovery) could be before 2013...I will guarantee you that unemployment gets below 7% when housing starts get over 1 million."

The market chatter surrounding Bernanke and Buffet, combined with the leaks from Washington sources, might give some credence to the adage 'where there's smoke, there's fire'. Given the low valuation levels of the homebuilding sector, we believe that a speculative opportunity exists. We believe that purchase of the S&P Homebuilders ETF (NYSEARCA:XHB) $15.17 offers an efficient method for trading ahead of the speech. With a 52wk range of $13.05-$19.21, plenty of room to the upside exists if the President's policies match the leaks.

In addition, for those investors looking to catch the turn in the very cyclical housing industry, we would pay careful attention to the President's speech. If there are initiatives that will indeed increase demand, then the market will be quick to react. The market is three years through the bottoming process, and positive policy initiatives from Washington would provide a significant boost to the entire sector. Our favorites are DR Horton (NYSE:DHI), NVR (NYSE:NVR), Lennar (NYSE:LEN), and Toll Brothers (NYSE:TOL), but the entire sector will benefit with a game-changing initiative. Others in the sector to pay attention to are Pulte Group (NYSE:PHM), KB Home (NYSE:KBH), Hovnanian Enterprises (NYSE:HOV), Beazer Homes (NYSE:BZH), and Ryland (NYSE:RYL).


DR Horton (DHI)

DHI

$10.60

52wk Range

8.82 - 13.50

'11 Rev est

$3.62B

'11 EPS est

$0.27

Market Cap

3.35B

P/E (ttm):

963.64

EPS (ttm):

0.01

Div & Yield:

0.15 (1.50%)


NVR (NVR)

NVR

$636.75

52wk Range

555.58 - 804.32

'11 Rev est

$2.76B

'11 EPS est

$26.84

Market Cap

3.46B

P/E (ttm):

24.25

EPS (ttm):

26.26


Lennar (LEN)

LEN

$14.66

52wk Range

12.39 - 21.54

'11 Rev est

$3.04B

'11 EPS est

$0.53

Market Cap

2.74B

P/E (ttm):

26.95

EPS (ttm):

0.54

Div & Yield:

0.16 (1.20%)


Toll Brothers (TOL)

TOL

$17.18

52wk Range

14.59 - 22.42

'11 Rev est

$1.47B

'11 EPS est

$0.13

Market Cap

2.89B

P/E (ttm):

37.68

EPS (ttm):

0.46


Pulte Group (PHM)

PHM

$4.95

52wk Range

3.40 - 8.99

'11 Rev est

$3.92B

'11 EPS est

-$0.20

Market Cap

1.9B

P/E (ttm):

N/A

EPS (ttm):

-3.32


KB Home (KBH)

KBH

$6.74

52wk Range

5.09 - 16.11

'11 Rev est

$1.28B

'11 EPS est

-$2.60

Market Cap

520M

P/E (ttm):

N/A

EPS (ttm):

-2.17

Div & Yield:

0.25 (4.30%)


Hovnanian Enterprises (HOV)

HOV

$1.75

52wk Range

1.20 - 5.00

'11 Rev est

$1.14B

'11 EPS est

-$2.37

Market Cap

165M

P/E (ttm):

N/A

EPS (ttm):

-4.01


Beazer Homes (BZH)

BZH

$2.19

52wk Range

1.48 - 6.23

'11 Rev est

$0.7B

'11 EPS est

-$2.45

Market Cap

162M

P/E (ttm):

N/A

EPS (ttm):

-3.02


Ryland (RYL)

RYL

$11.86

52wk Range

9.39 - 19.28

'11 Rev est

$0.93B

'11 EPS est

-$0.74

Market Cap

527M

P/E (ttm):

N/A

EPS (ttm):

-1.79

Div & Yield:

0.12 (1.10%)




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

Source: Could Obama Speech Rebuild Homebuilders?