Selling Some Lennar, Replacing Some NCI

Includes: LEN, MANT, NCI
by: TraderMark

Bulls are breathless today as something the government is trying to stop (home prices falling) is creating a crazy condition called "demand". Imagine that - the laws of Economics still hold. You can see from today's action that when the day comes that housing actually improves in any sustained way, there is an avalanche of money waiting to pile into housing stocks. But for now, all it will take is "less bad than previous month even if at 2nd worst reading in history" type of action - the bar is just that low.

  • Sales of previously owned homes in the U.S. unexpectedly rose from a record low, propelled by the biggest slump in prices since the Great Depression as foreclosures surged.
  • Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago, the biggest decline since records began in 1968 and probably the biggest in seven decades, according to the group.
  • “You have to put it in the context of an even steeper decline for the previous month,” said David Sloan, a senior economist at 4Cast Inc. in New York, who had the highest projection in the Bloomberg News survey. “The net trend is still negative. It does seem that some cheap prices are attracting buyers. I don’t think it’s a clear sign of a revival in the housing market. The housing market is very weak.”

Here is the reality; foreclosed homes are going to dominate sales for quite a while going forward. That does little to help the guy who actually lives in a home and is trying to sell their home at a market rate - since the foreclosure prices are far below the "market". But when you get the aggregate number, you will see "housing rebound" as homes priced 50% off are selling. Don't try telling that to people who are trying to sell their homes 35% over foreclosed prices in the area. But any shred of data point that can be twisted as a "rebound" in housing will be used as such.

  • 45% of the sales were distress sales, meaning foreclosure, pre-foreclosure, and short-sales.

I'm using the Kool Aid today to clear out of most of my Lennar (NYSE:LEN) as it was up nearly 20% - not a major position due to the controversy [Jan 9: Fraud Charges Against Lennar?] surrounding the name, but I've dropped it from a 1% stake to 0.2%. I am still deciding if I want to keep this name as my proxy on homebuilders or move to something with less drama. But this is exactly the "reversion to mean" trade we spoke about - stocks sandblasted to the ground; they simply do not go straight down and were due for an oversold bounce.

On a non related note NCI (NCIT) is one of our leaders that is stalling - and could go either way (break through support or simply resting). A limit order was placed at $30.05 which hit today, so I've taken this back up to a 1.1% stake. I sold most of this position last week in the mid $31s, so I am replacing that batch at a lower cost basis. But the stock is only down to its 20 day moving average, and if the Generals are shot (next) we should see downside to $28 (50 day moving average), where I have a larger limit-order waiting. This sort of trade is not a "fast money" opportunity, but rebuilding a stake as the name reverts to support. And I'm playing small - position size is far below normal levels.

A reader pointed out ManTech International (MANT) which has been showing up on my screens the past few weeks, which is very similarly positioned to NCI. The stock has exploded the past few sessions.

[Jan 14: Beginning Stake in NCI (NCIT)]

Disclosure: Long Lennar, NCI in fund; no personal positions