Get Ready For 400% Gains
By Dr. Steve Sjuggerud
July 18, 2007
I'm watching. I'm waiting. The time will be here soon...
The last time we saw this setup, you'd have made 400% on your money in just 16 months. We've only had one other setup like it, though it wasn't quite as strong... and you'd have doubled your money in 13 months.
I'm talking about homebuilding stocks. Yes, I know, the outlook for homebuilding companies could hardly be worse...
But think about that for a minute. If things can't get much worse, then they can only get... better. If you've read my writings over the years, you know "The Secret to 1,000 Percent Gains" is to buy when things go from "bad to less bad."
The chart below tells the story... you want to buy these stocks when homebuilder sentiment is going from bad to less bad. We're not there yet... but we're close. Just yesterday, the National Association of Home Builders announced its builder sentiment numbers, and they were the worst in 16 years...
Homebuilder Stocks vs Builder Sentiment
(Full disclosure here... I got faked out on homebuilder sentiment in late 2006 and recommended shares of homebuilder DR Horton in my newsletter True Wealth. Fortunately, we followed our discipline and stopped out of the stock without any damage. These things happen sometimes, and you've got to stick with your discipline to keep the losses to a minimum when you're wrong.)
I am not a buyer of homebuilding stocks just yet, for a variety of reasons... For one, shares of homebuilding stocks are notoriously volatile. For example, from their 1972 peak until their bottom at the end of 1974, homebuilding stocks as a group lost nearly 90% of their values. (While no data is available for builder sentiment back then, consumer confidence was high in 1972, and housing stocks were at their highs. Then consumer confidence plummeted, reaching its all-time low at the end of 1974, right at the bottom for housing stocks.)
When sentiment toward housing is low, get ready to buy housing stocks. Right now, homebuilder sentiment is the lowest in history, with the exception of two months at the beginning of 1991. Last time around, if you'd bought around the lows, you'd have made 400% in 16 months just by holding the Datastream index of homebuilders. If history repeats, get ready to make 400% in 16 months again.
The bottom in sentiment should be near soon. Once we see two consecutive months of improvement in builder sentiment, along with the return of an uptrend in shares of housing stocks, we will likely be buyers of homebuilding stocks again.
One final note here... don't read into this that the price of new homes will soar... The last time sentiment bottomed and homebuilders did well, the median price of a new home in America remained flat two years later. When you take inflation into account, you'd have lost money on a new home.
In sum... once homebuilder sentiment bottoms, shares of housing stocks could soar... but new home prices might still fall when you take inflation into account.
I will let you know what to buy, and when, in an upcoming issue of True Wealth.
The time is not right yet. But it could be soon... so start setting some cash aside... and get ready for what could be gains of as much as 400%. It happened the last time around...
Good investing,
Steve
| 
