I can’t find a reason for the big dip today. What am I missing? Just interest rate concerns?
-Bob
I just got on to post the same question, I don’t see anything specific to LGIH, pretty high volume, too.
Just a guess but it could be their exposure in the oil patch. Lot of layoffs going on right now.
Mike
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I suspect it is a risk-off reaction. They are a small thinly traded stock exposed to the economy. The rate rise has been expected quite a while and did not impact the stock before. The oil patch might affect them, but not so sure…
LGI Homes, Inc. designs, constructs, markets, and sells homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, and South Carolina, the United States.
They go after young people that can buy a house for the price of their rent, so it is more the overall economy. I think we just have jitters right now and this is going to be an opportunity.
Technically, it pierced its 50 day moving average on very high volume. People who trade on the chart are dumping right now. Which is to say, tomorrow might bounce, but maybe not a great time to add too much more. Let it play out a bit if you still believe in the story. We might have until next quarter before good news comes out, that is a long time to be able to accumulate.
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In the spirit of full disclosure, one other possibility for Monday’s drop is that I took an additional position in this stock on Fri.
I don’t know how I do it…
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I can’t find a reason for the big dip today. What am I missing? Just interest rate concerns?
Hi Bob, I think it’s a combination of worries about interest rates rising (which will theoretically make mortgages less competitive with rentals), and worries about the oil economy in Texas where they have a lot of business.
My thoughts about this are that a quarter percent rise from basically zero percent to just about zero percent, is just symbolic and won’t make any difference to any business out there. In addition, anyone with an apartment knows that rents go up every year, and after four or five years, that really compounds, but mortgage payments stay the same.
As far as navigating in the Texas economy, oil has been on the ropes for a couple of years now, and LGIH seems to have figured out how to navigate it very well.
But please remember that I truly don’t know anything about the real estate market, I’m just talking what seems like common sense to me.
Saul
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The WSJ has an article about how oil companies in the Permian Basin (in Texas and New Mexico) are still doing okay. Good for LGIH.
http://www.wsj.com/articles/looking-for-an-oil-play-try-the-…
The vast drilling region spread across western Texas and southeast New Mexico called the Permian Basin is credited with fueling the Allied victory in World War II. Now, its prolific wells and low costs are providing a rare redoubt for energy companies and their investors, even as plunging oil prices render other drilling regions unprofitable.
…
Several factors account for the Permian’s profitability. For one, unlike in some other drilling regions, producers in the Permian can tap numerous layers of oil-bearing rock from a single location above ground, enhancing their efficiency.
Also, decades of drilling have fostered an abundance of support businesses in the region that help to keep costs low, such as drilling-rig operators. And new pipelines built to carry oil to trading hubs have eliminated bottlenecks and helped Permian crude trade at a premium to oil extracted elsewhere, reversing a situation that until recently priced Permian oil at a discount.
Neil
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“The vast drilling region spread across western Texas and southeast New Mexico called the Permian Basin is credited with fueling the Allied victory in World War II. Now, its prolific wells and low costs are providing a rare redoubt for energy companies and their investors, even as plunging oil prices render other drilling regions unprofitable.”
Neil,
My wife and I live in the middle of the Permian Basin in Odessa, Tx. We see no significant economic impact from the recent plunge in oil prices.
The recent oil boom has resulted in thousands of wells that need servicing and maintenance. It is often more cost efficient to keep the wells running than to shut them down. Also there is a large demand for the vast amounts of superior light sweet crude which the area is known for.
There appears to also be little significant downturn in the housing market. Builders tell me they are now just beginning to catch up with past orders and are gearing up for the next oil boom. All of which seems bullish for LGIH to me.
Jim
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