by Louis Navellier | October 22, 2009 5:09 am
The housing market is in deep trouble. With high unemployment and stagnant wages, many Americans simply can’t afford a house. Lenders are
also protecting themselves from bad debt by extending mortgages only to those with the very best credit scores. And to top it all off, most of those
people who can afford a home and get financing are choosing not to buy now because prices are still falling.
It all adds up to bad news for home builders and related stocks. And this trend isn’t going to turnaround anytime soon. Protect yourself by
steering clear of these housing stocks now.
Low housing starts means fewer sales for homebuilders like industry giant Toll Brothers (TOL).
In the second quarter, TOL missed earnings forecasts by a stunning 64%, when it recorded a loss of $2.93 per share. Until some
of the inventory is reduced, I expect housing starts to remain low and homebuilders like Toll Brothers to remain in deep trouble.
Rick Sharga, a spokesman for the foreclosed property website RealtyTrac, said the third quarter was “the worst three months of all time” for
That means bad news for many thrifts and mortgage finance companies that have to shoulder the bad debt. Take First Niagara Financial (FNFG).
The company has seen quarterly earnings decline each of the last four quarters, with its latest profits falling -43% short of forecasts.
Stocks like FNFG are very bad investments now, and I look for continued trouble in the months ahead.
Capitol Federal Financial (CFFN) offers a range of lending products including first mortgages, home improvement loans and home equity loans and lines of credit. The company is based in Kansas, serving mainly the areas around Wichita, Topeka and Kansas City.
The housing downturn has really hurt the Midwest, where land was plentiful and new homes sprouted up like weeds in the boom times a few years back. But unfortunately, these communities are now suffering from higher unemployment and that means more foreclosures and fewer qualified borrowers.
With plenty of bad debt on its books and not enough good loans to offset them, CFFN is really hurting. This stock is a sell.
I don’t have faith in any financial stocks right now due to all this bad debt. But a particularly bad “dog with fleas” stock
right now is Bank of America (BAC).
The company swung to a quarterly loss of $2.6 billion on mortgage write-downs, even after being one of the largest recipients of government bailout
I know the stock has bounced back since the March lows, but this is not the time to get greedy. Sell this stock immediately. And remember, until
banks become more secure with their balance sheets, they will continue to create a housing bottleneck by restricting mortgage lending.
With prices on the way down, property management companies simply can’t command the prices they once did for land and homes.
Stratus Properties (STRS) is a perfect example. The company has
about 1,600 acres under management and development. And every single one of those parcels is worth much less now than it was a year ago.
There is no point holding Stratus at this point in time, with no uptick in the housing sector in sight.
Fewer permits mean fewer home constructions in the future. That means business is drying up for building companies, contractors and consultants.
Masco (MAS) provides cabinets, plumbing equipment and other home
improvement products to builders all over North America. However, that business has all but disappeared during the housing downturn, and the company
is struggling just to break even right now.
Masco is a sell.
Small-cap companies like Simpson Manufacturing (SSD) have been
hit hard by the slowdown in housing and are in for continued trouble in the months ahead.
The company makes wood screws, metal fasteners and other housing-related products and has seen profits drop by about 90% over the last three quarters.
And once the tax credit dries up, it could get even worse. Just as we saw auto sales screech to a halt after the “cash for clunkers” program
was over, you can expect home sales to take a similar dive. Simpson Manufacturing is a sell.
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