-
Last week, we saw some disappointing housing data — existing home sales were down, and new home sales were up less than 1%. I think this will be
the beginning of a re-adjustment in Wall Street’s attitude toward the homebuilders, and a few of these companies could even go bankrupt. Check out
these fun facts:- Home prices have never fallen this far, this fast, and I think they will continue to fall another 15% or so.
- The number of foreclosures has never been so high, and is climbing. Foreclosures are not likely to peak until mid-2011.
- Due to foreclosures, inventories will remain near all-time highs and prices will continue to fall.
Combine all of this with the tightest mortgage standards in living memory and you have the next chapter of homebuilder Armageddon. So, which stock
is the best one to short in this sector?
-
Hovnanian Enterprises (HOV)
The homebuilders with the weakest balance sheets and a focus on high-end homes will struggle the most and could possibly even go bankrupt, so take
a look at shorting Hovnanian Enterprises (HOV).It doesn’t take a genius to measure a balance sheet: long-term debt divided by net cash. And Hovnanian has nine times long-term debt to net cash
(not kidding). Plus, the company has a focus on high-end homes in a recession — not a good thing.Right now, HOV is the best place to go short. And the best way to do that is with HOV put options with expirations three to six months out.
