| Orleans
Homebuilders (OHB) and Other Housing Stocks Continue to Sink |
Published: September 20, 2006
Like most homebuilders, Orleans
Homebuilders (OHB) has been hit hard over the past few months. A few
months ago, most investors seemed willing to believe the real estate
market would slow in an orderly fashion; recently, some pundits have
been calling for an outright collapse and bust. Extremes of sentiment
such as this often provide investors with excellent buying
opportunities.
The chief concern here is that
the U.S. housing market is slowing down more rapidly than expected and
the nation's homebuilders are sitting on a significant inventory of
unsold homes. It's true that the housing market has slowed considerably
since late in 2005 -- one has only to look at a chart of housing starts
to see that there is less robust activity this year than last year.
However, the housing market is slowing from a red-hot pace, as 2003
through 2005 was one of the strongest real estate markets in U.S.
history.
Moreover, the recent slowdown
is still far from a collapse. In fact, the recent downtick in interest
rates may already be starting to stabilize the market.
OHB reported in August that it
has seen a significant uptick in order cancellations -- homebuyers
are simply walking away from homes they've ordered. This situation is
most acute in previously ultra-hot markets like Florida. OHB
has also reported a significant drop in order activity. With these factors in
mind, management recently cut its guidance for the remainder of the
year. The stock has been falling steadily on that news; shares in OHB
are down about -10% over the past month alone.
But the news for OHB is far
from terminal. Even after the guidance cut, OHB should earn close to
$1.50 per share next year. Based on current prices, that works out to a
multiple of barely 8 times earnings. And if the property market does
experience a soft landing, then OHB will easily beat those estimates.
Bottom line: with long-term growth near +8%, OHB is starting to look
much more compelling at current levels.
Although it might still be a
bit too early for investors to jump back into shares of OHB and other
homebuilders, I'm going to place the industry back on my radar screen,
and my staff and I will likely issue further guidance on this important
topic in the coming months.
Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
