Where I See 500%+ Gains Over the Next Four Years
By Dr. Steve Sjuggerud
October 23, 2007
Greetings from the New Orleans Investment Conference – "The World's Greatest Investment Event" (or at least that's what it calls itself).
"Nice speech," an attendee told me as I walked the halls. "But you're wrong about the homebuilders," he said. "We have years to go before this housing thing is over with."
He missed my point completely.
But I don't think he's alone… I think many people don't believe me. I urge you to let me make just one point here.
If you're willing to listen, I think it could be worth 500% or more to you in profits over the next four years. While 500% sounds like a huge promise, we've actually seen gains like that twice before in times like these.
Here's my one point…
Shares of homebuilders actually soar the most just after new home prices start to fall.
The chart below tells the story… New home prices have only fallen twice in our generation… from 1979-82 and from 1989-92.
Home prices fell during horrendous times… For example, in 1981, mortgage rates peaked near 20%, and unemployment peaked near 10%. Not only could people not find work, they couldn't afford a home. Who in his right mind would by shares of homebuilders when nobody was buying a home?
Yet look what happened to shares of homebuilders back then… they soared by more than 1,000%.
Shares of Homebuilders soar before home prices bottom |
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The same thing happened in the 1990-1991 recession… New home prices fell. But shares of homebuilders soared, rising by more than 500%.
Now we're seeing the same setup…
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Today, shares of homebuilders are just as cheap as they were in 1982 and 1990, trading at a huge discount to book value. |
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Investors are just as afraid of the future of homebuilding as they were in 1982 and 1991. |
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New home prices have started to fall. |
Many people don't believe that shares of homebuilders could soar until after the housing market bottoms. That's wrong. Waiting until the housing market bottoms is not the right way to go. By then, it's too late. You've missed it.
History shows that we've got to buy homebuilders now, or at least very soon.
If you're bold enough to step up to the plate and buy, you could see gains in excess of 500%. Sounds crazy – until you see that it's happened the last two times we've been in this position…
Buy shares of homebuilders now…
Good investing,
Steve
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THE MOST TROUBLING CHART IN THE MARKET RIGHT NOW
The stock market's opinion of the U.S. consumer is clear: He's sick as a dog.
We typically don't pay much attention to the "consumer is dead" crowd. Bears have been calling for the demise of the American spender for decades, and he's proven more resilient than a cockroach. But one look at the list of stocks scraping new 52-lows reveals a shocking trend… America's premier "consumer" stocks are tanking.
A few of the biggest losers here: Cabela's (outdoor gear), JCPenny (department stores), Nordstrom (high-end retail), Stein Mart (department stores), La-Z-Boy (furniture), Pool Corporation (pools), P.F. Chang's (restaurants), Brunswick (recreational boats), and Liz Claiborne (clothing)… all setting new 2007 lows.
And perhaps the most troubling loser? We present the nation's largest home improvement chain, Home Depot. The Depot lives and dies by America's propensity to spend spare cash on roofing, room additions, and lawn work. Second-quarter sales declined 1.8%... and the stock is down 21% this year. No, the consumer isn't dead, but his free-spending days are behind him.
-Brian Hunt
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U.S. strip-mall vacancies only inched up in the third quarter, but still hit a 5½-year high, spurring concerns about cutbacks in consumer spending. Rentals of retail space in weak housing markets are getting hit disproportionately hard, as consumers rein in their purchases.
In states such as Florida and California, where housing markets are among the weakest in the country, retail fundamentals have markedly softened in some places. In Sacramento, Calif., the strip-mall vacancy rate has jumped to 6.3% in the third quarter from 4.5% in the year-earlier period. Quarterly rent growth in the last nine months was an average 0.3%, compared with 2006's average growth of 1.4% a quarter. |
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Caterpillar, the US-based maker of construction equipment and heavy-duty engines, issued a bleak prognosis for the US economy on Friday, saying that it was "near to, or even in, recession".
The warning, which included a downward revision of 2007 earnings estimates and a sober outlook for the US market in 2008, helped propel a widespread slide on Wall Street on Friday. Caterpillar shares were 6 per cent lower at $73.03 by late afternoon.
The sectors in which Caterpillar operates – trucking and construction – are widely seen as barometers of US economic health.
While Caterpillar's net third-quarter profit climbed to a record $927m, or $1.40 a share, the improvement was entirely due to a strong performance in other parts of the world. |
– Financial Times |
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