Cutting Back Gafisa Thanks to Cramer

| About: Gafisa S.A. (GFA)

I was perplexed as to why Brazilian homebuilder Gafisa (NYSE:GFA) suddenly has made a huge move out of nowhere - the stock is up 16% in 3 sessions. Now I see... Cramer! Looks like it was mentioned last Friday, and the stock has moved from $31 to $36. Always a double edged sword, since the Cramer lemmings jump in and start creating "mad" volatility in the stock, but in this case, since Gafisa was so under the radar, I guess it is ok. I am going to take this opportunity to sell to Cramer lemmings...

I also learned Sam Zell had a 14% stake which makes me even more bullish long term. But in an anti "buy and hold" environment, I cannot turn down 16% in 3 days. So I'm selling here in mid $36s and will try to buy back lower, after Cramer effect wears off.

  • Cramer saved his best Brazil pick for last, highlighting the homebuilder Gafisa on Friday’s Mad Money a play on a “money lending revolution” in the Latin American country.
  • Brazil’s red-hot growth coupled with a stable economy has vaulted the South American country to the top of the list of best places to invest, as far as Cramer is concerned. But perhaps more importantly for Gafisa the country passed a new law that makes it easy for banks to repossess homes of buyers who have defaulted on their loans.
  • In the past, it would take up to eight years to seize property and consequently led to banks tightening their lending practices. But now the law says banks can seize property in under a year, and consequently these banks are now much more willing to lend, which has led to Brazil’s booming housing market (the total number of mortgages issued in Brazil grew by 80% last year).
  • So why Gafisa? The new lending laws have created a lower-income market for homes that has low supply and huge demand that GFA is tapping into. Also, billionaire entrepreneur Sam Zell’s private equity firm owns 14% of the homebuilder. He wouldn’t own it if he didn’t think it was going much higher, Cramer said.
  • In addition to Brazil’s economic growth that led to poor and middle class Brazilians buying homes for the first time, Gafisa’s valuation is really the nail in the coffin. The company is expected grow its earnings by – get this – 203% in 2008 compared to last year and it’s expected to grow revenues by a substantial 53%. That doesn’t happen on the strength of the economy alone.
  • The bottom line is that Gafisa is an unbelievably cheap play on one of the best secular trends in one of the strongest global economies, according to Cramer. Who wouldn’t want a piece of that?
It is really too bad - I really like India and Brazil but there are very limited ways to play both countries with individual stocks; instead we get 100 "me too" Chinese companies flooding the US markets because that's all anyone wants in the US - China, China, China (Marsha, Marsha, Marsha)...

Disclosure: Long Gafisa in fund; no personal position
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Tagged: , Residential Construction, Brazil
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