Homebuilders Bounce Like a Dead Cat
Originally Published in Charting the Market 7/14/07
The homebuilders found a little love Friday for the first time in months, driven by rumors that Warren Buffet was snapping up shares of Hovnanian Enterprises (HOV-NYSE). Market players have failed to discriminate in the past between Buffet’s positions and those initiated by Lou Simpson, who runs money for Buffet’s GEICO operation. Hovnanian’s market cap is more typical of a Simpson play...did the fast money shoot first? We don’t want to ask too many questions...but doubt the builders have much going for them besides oversold stochastics and hope. You will get paid owning these stocks from here. But you had better be prepared to exhibit a little patience. Although holders of NVR are probably wondering what all the fuss is about. A recent pullback, but no debacle there. No Positions.
Buffett Rumors Bogus
Well, of course, we can’t say that for sure.
But every time I get trapped in a losing position I trot out the Buffett rumor. the funny thing is, my friends never bite.
Hovnanian Enterprises Inc. shares jumped the most since December 2004, leading homebuilders higher, on speculation Warren Buffett’s Berkshire Hathaway Inc. may buy a stake in the company.
``There’s talk that Warren Buffett wanted to buy a stake,’’ said Justin Wiggs, a trader at Stifel Nicolaus & Co. in Baltimore. ``People are extrapolating that Warren Buffett could be trying to call the bottom of the homebuilder stocks.’’
Where there is smoke there is fire. But oftentimes Buffett’s sidekick Lou Simpson is behind the rumors.
The 2004 Berkshire annual report explains that GEICO’s Lou Simpson, an astute investor in his own right, manages approximately $3 billion with Buffet’s blessing. And it appears he has the authority or wherewithal to establish positions up to the $300 million mark… 1440 Wall Street
Late last year there were several “bust the shorts” calls to arms on the builders. It did not happen. But they certainly got a little jiggy today, with 15 of 16 homebuilding issues trading higher.
Still, not everybody is buying it…
``It’s just another junk rumor on a Friday,’’ said Greg Palmer, head of equity trading at Pacific Crest Securities Inc. in Portland, Oregon. ``But if you put a big name to it then away you go.’
The only homebuilding stock truly trading at trough valuations is Beazer Homes (BZH-NYSE) which has seen an ongoing federal investigation pummel its valuation harder than its peers. Still, signs of intellligent life are showing up on the shareholder rolls, evidenced by Moore Capital’s filing on Beazer earlier this week.
Although the stocks are certainly nearing a point, valuation wise, where you should kick the tires, it seems a mite early to plunge in with both hands. And the only thing we can say with 100% conviction is that the casino will re-open.
9:30AM Monday
Hovnanian Surges on Speculation Buffett May Buy Stake
Bloomberg
Buffett is Buying!!!!!!
10/31/06
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The content contained represent the opinions of1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned
Broadcom In the News
Originally published In The News 7/ 13/07
A slew of huge stock buyback announcements, earnings from GE and a ramp in the market make for enough news flow to sate any hard core market junkie. But today’s Bizarro news comes from a dusty office suite at chip maker Broadcom (BRCM-NASDAQ). Henry Nicholas cut quite a dashing figure at the turn of the century. Rich and thin for sure, but also a bit unorthodox as he crafted an image not unlike that of Jason Giambi. Henry was a badass, claiming to need little sleep and famous for late night weight lifting sessions accompanied by the music of Metallica. He was more jacked up than the stock, and a poster boy for hard charging executives. However, music might not have been his only vice:
The stock option probe at Broadcom has taken an odd turn, with the focus shifting to the chipmaker’s ex-CEO Henry T. Nicholas for alleged drug use and other excesses, the Wall Street Journal reported Friday.
Kenji Kato, a former personal assistant and bodyguard to Nicholas, filed a civil lawsuit in Los Angeles Superior Court earlier this year claiming Nicholas forced him to use illegal narcotics and said his former boss spiked the drinks of clients and offered prostitutes to customers, the newspaper said.
“I would see him put powdered ecstasy pills into the drinks of his customers,” the Journal said Kato claims in a court declaration. “Other times, when we were at trade shows in Las Vegas, it was normal for Nick to request and send prostitutes to his customers to entertain them.” CNNMoney.com
Ludicrous allegations? Perhaps. But the ongoing option backdating scandal is no joke. Henry took no prisoners. Soon he might be one.
No Position
Wall of No Worries
Originally Published in Charting the Market 7/13/07
Sick of cliches? You must be short, because this market continues to climb a wall of worry. Pessimism by options traders dominated put/call readings two weeks ago, as ratios spiked due to sub-prime fears. Aggressive Growth stock funds continued bleeding assets into the spring but Tech is now leading the parade. And don’t you know, analyst Buy ratings continue to be scarcest they have been in nearly a decade, but the S&P 500 is shrugging all of it off and putting up a new 52-week highs. Valuation continues to underpin the market, and with at least one prominent seer looking for ‘07 S&P earnings of $104, a little bit of multiple expansion could go a long way. Slap an 18-19x on his estimate and see what you get.... By the way, did you write this stock (INTC-NASDAQ) off, just like everyone else? What a difference a year makes. Capital Research wins again. No Position
Whole Foods In the News
Originally published In the News 7/12/07
Going green is one thing. But turning green in the gills is another. Shareholders of Whole Foods Markets Inc. (WFMI-NASDAQ) had a long run of uninterrupted prosperity for much of this decade. The company banished Wild Oats to the bargain bin, and taught national supermarket chains a thing or two about merchandising. But shareholders have not had it very easy of late, and the breaking news that CEO John Mackey was posting for years under an alias on the Yahoo! stock message boards probably won’t be greeted warmly by either the board or shareholders. Although his bashing of Wild Oats on the stock message boards might not have gotten the desired effect, given that the stock never reached his measly price target, he still went out and bought the company. Dirty Pool? Or is all fair in love and war? Herb Greenberg will have a field day with this one.
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position
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