Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Toll Brothers, KB Homes Going Up in Flames?


Homebuilders have moved too far, too fast.

What a day yesterday turned out to be. I managed to miss the bus on the way to work, and then missed it on the way home as well. Making matters worse, the one I caught on the way home broke down. Here's hoping today is better.

Asian stocks were a bit of a mixed bag overnight. The Heng Seng ended down 0.93%, while the Nikkei was up 0.93%. European stocks however were in positive territory early this morning. And here in the US, we're currently trading higher.

Here's what I'm seeing this morning:

Best Buy (BBY):
The electronics retailer was in the spotlight in Tuesday's session after it released its third-quarter numbers.

In case you missed it, the chain put up a profit of $0.53 a share, which was a dime better than expected. It also indicated in the release that for fiscal 2010, it's looking for $3 to $3.15 excluding items, which isn't too shabby in that the Street is at $2.96.

However, it seems some are in a twist over pressure on gross margins going forward in the fourth quarter.

Some thoughts:

1. It was a good quarter, and frankly, I won't be surprised if we see some gross margin pressure. After all, the economy is still in a pretty big funk and the company has deep-pocketed competitors like Amazon (AMZN), Walmart (WMT), Target (TGT), and others breathing down its neck. With a name like "Best Buy," these tough times, and investor demand for profits, of course it has to offer great deals on electronics. But I wouldn't crucify it for that.

It took a pummeling in Tuesday's session on heavy volume because of all the hand-wringing, but at the end of the day, I see it as an opportunity for a nibble. (See also, Six Reasons Best Buy Is a Retail Winner.)

Toll Brothers
(TOL)/KB Homes (KBH):
Things aren't so rosy after all, are they?

Per Reuters: "US home builder sentiment unexpectedly fell in December on concerns over the weak labor market, according to a survey Tuesday that pointed to a patchy recovery in the housing sector. The National Association of Home Builders/Wells Fargo Housing Market Index slipped to 16 from 17 last month, below market expectations for a reading of 18."

Both Toll and KB Homes were down slightly on the heels of the news.

Some thoughts on the homebuilders in general:

1. I've said for some time that I think the group has moved way too far, way too fast and is overextended based upon the demand for housing. And now, with the chance that interest rates could start rising, I don't think things are going to go as gangbusters in 2010.

2. This stock market is, in many ways, a fairytale. On Main Street, many are still afraid of losing their jobs, and the real estate market is still filled with foreclosures and low-priced homes, which provides ample competition. Toss the potential for rising rates into the mix and it could spell trouble. While long haul I think they do make a nice comeback, bottom-fishing right now would be like playing with fire.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos