Lennar's Good Old Days

I just reviewed earnings for Lennar Corp (LEN) and as expected they were atrocious. I don't mean to pick on them since they have enough problems as it is, but while I was on the company website, I came across a presentation from a sell side conference back in February 2006. The stock was at $60 back then as you can see below:



One of the slides in the presentation detailed the secular bull case for Housing. The reasons given were:

1. Demographics favor continued strong demand.
2. Land supply is constrained.
3. Strong balance sheet & liquidity drive expansion.
4. Market diversification.
5. Professional management teams.
6. Competitive advantage – economies of scale.

It's astounding to me how many institutional investors bought into this thesis. It's very difficult to resist the call of a bubble.

In defense of Lennar, they did present an alternative scenario in the next slide:

1. Rates rise.
2. Economy falters.
3. Unemployment up.
4. Affordability down.
5. Demand weakens.
6. Margins compressed.

Anyhow, I don't have to tell you how it ended and which scenario won out:






If you look at the last housing cycle for Lennar, it also shows a pretty interesting ride, and a great way to make a lot of money if your timing is right.



Disclosure - No Position in LEN.

Charts courtesy of Big Charts.

Comments

[tomyris:]

I agree completely with your article , it is also interesting that the low in 1990 was close to 0.5$ whereas in 2008 it will likely be north of 10 $ . This alone shows what tremndous growth potential is in the HB's when something close to normality returns . From what I can tell the doomsayers are still screaming for more misery , but can things be all bad when GWB only has six months to run .

2008 Jul 02 04:58 AM

[Eric Fox:]

tomyris...the low in the last cycle in the early 1990's was $0.50 but remember that the stock ha split since then so at the time the price was actually higher. It was adjusted when the stock was split.

One thing I noticed is that even if you didn't pick the absolute bottom - let's say you bought it in early 1990 at $1.00, you would have lost half your money by 1991, but if you held on you would have been rewarded eventually.

2008 Jul 02 08:28 AM

[tomyris:]

Eric,

I believe that my comparision of the low in 1990 0.50 $ with the probable low of near 10 $ today is taking into account all splits etc... as the validity of the comparison is evident by looking at any current long term chart.

2008 Jul 02 10:37 AM

[User 221364:]

Since going public in 1987 LEN has underperformed S&P 500. finance.yahoo.com/q/bc...

2008 Jul 03 07:39 AM

[Eric Fox:]

tomyris...my apologies. I misunderstood what you said. New lows today on Housing stocks - anyone jumping in?

2008 Jul 03 03:44 PM