LGIH

LGI homes is down around 25%…starting to look pretty juicy. Saul, has anything changed for you there? Still your largest holding?

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LGI homes is down around 25%…starting to look pretty juicy. Saul, has anything changed for you there? Still your largest holding?

Hi Bear, Yes it’s still my biggest, although not such a large percent of my portfolio after its fall. I’m not currently adding because (a) it’s such a big position already, and (b) I can’t understand WHY it’s falling, which makes me nervous. It makes no sense to me unless it’s just getting lumped into a homebuilders sector and some computer is saying “Sell homebuilders”.

Best,

Saul

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Hi Bear, Yes it’s still my biggest, although not such a large percent of my portfolio after its fall. I’m not currently adding because (a) it’s such a big position already, and (b) I can’t understand WHY it’s falling, which makes me nervous. It makes no sense to me unless it’s just getting lumped into a homebuilders sector and some computer is saying “Sell homebuilders”

yes, I suspect that is the case. Interest rates are seen as going up and a number of building supplies have seen bad earnings and/or sell offs.

http://stockcharts.com/freecharts/candleglance.html?AOs,MAS,…

It makes no sense to me unless it’s just getting lumped into a homebuilders sector and some computer is saying “Sell homebuilders”.

I would imagine it’s just simple fear. The home market has been so hot for so long, and I’m no expert but it does seem to be showing signs of slowing. It’s just hard to quantify fear. Like, is the fear that they level off? Then it seems overblown. With the PE at about 9.7 as I write, they don’t really need to grow very fast to be well worth their valuation and more. Especially as profitable as they are. They could start buying back shares at some point, for heaven’s sake.

But if the fear is that demand falls to the point that their revenues start shrinking, that’s the rub. I don’t know how anyone can predict that, but I’m certain they’ll try.

But the bottom line is, I think it likely they’ll adjust 2016 guidance down (read: 4th quarter will disappoint). So I’ll probably wait until the quarterly report comes out. If that happens and the stock tanks another 10 or 20 percent, I’ll be licking my chops to get back in. (Obviously I already kind of am.)

Bear

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The housing industry is very cyclical. It is very much affected by interest rates and mortgage availability. P/E multiples in the single digits are the norm, not the exception, for these stocks.

http://www.valueline.com/Stocks/Industry_Report.aspx?id=7244…

Maybe LGIH will do fine, maybe not. I have no position in it. But unless you commit to doing a lot of research on a particular industry as well as a particular stock, you are not smarter than the market. Have you read LGIH’s recent 10-Qs and 10-Ks? Do you understand them?

Building big positions in falling small-cap stocks with low p/e’s simply because they look cheap is a good way to get your head handed to you.

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