More Upside for Homebuilders or Is It Too Late?
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10/08/09by Heesun Wee
Homebuilders such as Lenar (LEN) and Toll Brothers (TOL) have enjoyed a nice rally amid hopes the worst of the housing crisis is over.
But Goldman Sachs recently raised eyebrows, when it upgraded the group to “attractive” from “neutral,” adding “stable home prices, low mortgage rates, and strength in sales activity…should lead to higher equity values,” according to WSJ.
In contrast, Citi analyst Josh Levin says the party’s over for now, and can’t see justifying owning the group at such high valuations, according to WSJ.
Our guest Jon Najarian, president of OptionMonster.com, notes Goldman may be looking ahead to more stimulus for the housing sector. President Obama’s $8,000 tax credit for first-time homebuyers is set to expire November 30. “I think they will extend it,” says Najarian. (Senate Banking Chairman Chris Dodd wants a six-month extension.) Najarian points to sharp declines in auto sales after the Cash for Clunkers program ended — a similar trend that wouldn’t be politically palpable for Washington right now.
Click on the video to view Najarian’s picks and strategies for the home-building sector.
Najarian does not own any of the homebuilder stocks mentioned in the segment.
Letting the tax credit expire during the holiday season, when home sales tend to begin dipping anyway, could be disastrous for builders with inventory. Of course, if they made accurate market predictions, they probably wouldn’t need tax credits in the first place. However, as it’s probably too late for that, I hope Congress extends the credit offer another six months.