Buying Homebuilder MDC Holdings For The Long Term

While it could be dead money for a while, MDC Holdings is a premium company within the homebuilding space and is selling for an attractive price.

MDC is a buy and hold, long-term growth play. Of all the homebuilders, MDC probably has the best balance sheet. Their land policy is extremely conservative, as the company avoids spec homes and doesn't purchase land until they are ready to build. The stock, at $50, is selling at a slight premium to book (around $47 and change). Given the company's conservative business approach, book value is meaningful, tangible and not at much risk, especially compared to many other builders. MDC is in a prime position to capitalize on opportunities within the industry as the shake out continues.

Disclosure: We own shares of MDC Holdings.

MDC 1-yr chart:

Comments

[Landman:]

I'd sell and take profits now since the stock has rebounded a little off a bottom here in late 2008. The Roaring Lion of Richmond American has been put back in its cage - probably for good.

MDC is consolidating down to 7 offices nationally in late 2008 - this isn't a growth story, it's major contraction and consolidation at its best! It's hands on founders are getting older and more risk averse as they like the trappings their success has provided them. It's selling off its finished lot inventory at substantial markdowns which are a fraction of original cost. When the market rebounds, it will have to replace these expensive lots at substantially higher costs thereby reducing any potential future profit margins.

The Rocky Mountain Homebuilder bet far too much on local land in Denver in the 1980's and almost went out of business, ever since that time this homebuilder has been afraid of its own shadow. It's tried like hell to hold on to it's 10th place NAHB largest homebuilder placeholder, but will probably slip in the future as more agressive players that maximize cash flow/profits, value intellectual talent and minimize risk will push it aside.

The always Fiscally Conservative MDC will continue to brag about its strong balance sheet, large Wall Street Credit lines and minimal land holdings - this is the same old mantra I heard for years when MDC was so conservative it left hundreds of millions of dollars in lost opportunities (revenue) on the table in each state passing over a multitude of great profit making deals during the largest real estate expansion cycle in history. It was so bad I used to have to pull the wool over Corporate's eyes to get them to buy deals that later made them high double digit profit margins. That's right, fiscally conservative MDC Corporate literally had to be bamboozled to buy projects that later provided them with high double digit returns. I sold my stock near the top of the market for a 4x gain as I exited this company and probably wouldn't buy it again.

When homebuilders rebound, there will be many more agressive, nimble players who value intellectual talent, maximize profitability and whose stock prices will rebound much quicker.

Here's to a Merry Christmas Dave & Larry!

2008 Nov 05 12:33 PM