Centex Sale Boosts Homebuilders; HOV Up 8%
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Your Daily Profit

April 8, 2009

*****Earnings Season

*****Signs of a Bottom for Housing

*****Newsletter Advisors

Fellow investor,

It doesn’t happen often. Earnings season usually kicks off with either some bullish enthusiasm or bearish pessimism. But Tuesday afternoon, Alcoa (NYSE:AA) gave analysts exactly what they were looking for: nothing more, nothing less.

Alcoa lost money in the first quarter. A lot of it, really. $497 million. A year ago it earned $303 million.

But that loss was, apparently, perfectly priced into the stock. And so was the CEO double-speak forecast — the weakness in aluminum prices will continue, but there are signs of life. The stock has barely budged so far today.

*****The major indices are holding small gains, which I suppose we’ll take as a good sign. If stocks are fairly priced at current levels, we can at least feel better that the market, and possibly the economy, has put in a bottom.

Today, we’re also seeing one of the signs of a bottom for housing: consolidation. Pulte Homes (NYSE:PHM) is buying another home builder, Centex (NYSE:CTX).

When homebuilders start to buy each other out, it’s a sign that they think valuations are attractive. It’s also a sign that at least some of the home builders are healthy enough to make moves.

And this particular acquisition by Pulte is even more interesting because Centex owns a lot of land in Florida and California — two markets that are still thought to be overvalued.

Centex is up 23% on the deal. And yes, I would have preferred that Pulte buy Hovnanian (NYSE:HOV). I’d love to see that stock jump 23% after my recent recommendation here in Daily Profit. Still, Hovnanian is enjoying a nice 8% bounce. It has strong resistance at $2 a share.

*****It’s Newsletter Advisors Wednesday. Today, we hear from Joe Cotton, editor of Cotton’s Technically Speaking. Enjoy.

   

*****As always, I want to hear your questions, comments and jokes. Email me at [email protected].

That’s it for today. I’ll talk to you tomorrow.

Ian Wyatt

Editor

Daily Profit

 

 

Investor Expert Insights

Interview Joe Cotton

 

In today’s issue of Investor Expert Insights, Joe Cotton, editor and publisher of Cotton’s Technically Speaking, gives us his take on the current state of the economy, markets and President Obama’s first few months in the White House. Cotton is a technical analyst and former credit analyst.

 

Joe, last year was devastating for most sectors, if not most companies. Were you able to find any pockets of strength?

Yes. We have been recommending Google (Nasdaq:GOOG) and Baidu (Nasdaq:BIDU) at prices from $285 to $330 for Google, and $105 to $120 for Baidu. They are currently trading around $364 and $120, respectively. Our main focus is to look for and recommend grossly oversold quality stocks such as General Electric (NYSE:GE) and Ashland (NYSE:ASH); both traded as low as $6 or so. These are amazing bargains for long-term investors. Both have moved up strongly since we recommended them. We also like some of the quality bank stocks such as Wells Fargo (NYSE:WFC), which has doubled since we bought it around $7.50.

Once some sense of normalcy resumes in the financial world, what sector(s) do you think will lead us out of the bear and why?

On March 17, I stated that the bear market had bottomed on March 9, the day we advised subscribers to buy into an anticipated selling climax. Quality tech stocks, solars, oil, coal and oil services stocks will lead the market. All three sectors became too cheap, as did the price of oil. My experience has been that the oversold techs always lead the rally out of a bear market bottom. Solar and energy stocks should join the rally because oil prices became artificially low.

Name 3 stocks you would buy today and why?

Brandwine Realty (NYSE:BDN): $3.50 - This is a cheap REIT.

Microsoft (Nasdaq:MSFT): $18.36 – Here’s a quality tech stock that we believe bottomed at about $15 in early March.

Arch Coal (NYSE:ACI): $14.32 - This quality coal stock is selling at a discount and should move up with oil prices.

If you were face-to-face with President Obama, what unique perspective could you give him regarding the markets and challenges facing investors?

  • I would advise President Obama to do the following: Re-institute the uptick rule immediately. It was originally put into place because short sellers devastated the markets in the 1930s. The reason this market fell so hard and so fast was because someone at the SEC eliminated the rule. That fact alone begs investigating. The uptick rule prevents hedge funds from pushing down stock prices by continued short-selling at a market price.
  • Make toxic mortgage assets non-toxic. Allow all adjustable rate mortgages to convert into 4% interest–only mortgages (at the option of the home buyer) for three years, and then convert them to a 30-year fixed mortgage at a 4% interest rate; and make all of the loans assumable by a subsequent purchaser. 
  • Impose a national moratorium on all residential (apartments and houses) foreclosures for one year.
  • Make it illegal to charge more than 12% interest on any credit card, and make the law retroactive. Make it illegal to offer a credit card to anyone with four or more credit cards.
  • Instead of national healthcare, and massive amounts of new government, only provide standard healthcare benefits to people who make less than $75,000 per year. Provide a catastrophic policy (for over $5,000 in medical costs) to those with $75,000+ in income, then open up clinics for those making less than $15,000 per year.
  • The current budget is irresponsible and will eventually cause our Treasury bonds and bills to lose their AAA ratings, which may push the Chinese to forgo them, raising interest rates through the roof.

What do you say to people who are tempted to buy technology, even financial stocks, at these low, low prices?

I don’t think any particular investment is safe today. You should still have 40% in cash, but when GE dipped to $6, we said it was a great buy. And when Fifth Third Bank fell to $1, we thought it a great buy. After prices double or triple, we like to take profits. Sell at least 50% of your position; that way you’re trading on free money. These are wonderful times to buy stocks at unbelievable prices, especially for long-term dollar averaging investors.

What fundamental strategy do you follow for buying portfolio positions?

We like to buy historically low prices for portfolio positions; but if we like the stock, and it moves down 20%, we like to buy more and buy again if the stock declines another 20% from our original buy price. Don’t buy a particular stock all at once. Ease into it, no matter how much you like it.

 

What are your thoughts on Joe’s recommendations for the President? Would a moratorium on foreclosures help? What about his health care idea? My inbox is always open (and I read your notes!), so write to me at [email protected].

--Ian

 





Posted 04-08-2009 12:42 PM by Ian Wyatt
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