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economics102 (91.64)

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February 24, 2009 – Comments (6) | RELATED TICKERS: CHB , DHI

Great trades are made when you know something no one else knows. If you think that now is a good time to dump your shares of homebuilders because the market collapsed you would be wrong. That's taking information that was evident back in late 2008 and using it to get a head of the market. Yet people still think that they are going to outsmart the market by betting against them. Housing markets may have lost a third of their value, but homebuilders have lost more than that. DHI is down 53% from its 52 week high, CHB down 95% from its. CHB was hit so hard for one big reason, and that's people short selling it. Short sold shares represent 12.8 % of total shares outstanding. That equates to over 9.62 million shares. This combined with the fact that its average volume (10 day) is only 437,000, made the price get hammered. It would take about a month just to buy back all the shares that are currently short sold. Short shares make up only 8.5% of DHI or approximately 22 million shares, but the average volume(10 day) is over 15 million, meaning only two days of trading to buy back all of the shares short. If CHB get's one quarter of profit the price will quadruple and go over a 1.50 a share, this in turn will cause some of the people who bet against it to default or stop loss, especially if any of them bet on margin, which many probably did thinking they were so clever betting against the housing industry. This will cause panic and artificially raise the price over 3 dollars a share. when the market reevaluates it will put CHB between 1.75 and 2.25 which represents its fair value. For DHI the fair value will most likely fluctuate around 8 to 9 dollars a share, most likely seeing $7 in the march 2009, and $10 in March 2010.

 

6 Comments – Post Your Own

#1) On February 24, 2009 at 12:53 PM, TMEBenBenBen (< 20) wrote:

>>>'Great trades are made when you know something no one else knows'<<<

Actually using material non-public information to benefit from a stock trade, in many cases is illegal.

 

 

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#2) On February 24, 2009 at 1:08 PM, djemonk (< 20) wrote:

Actually using material non-public information to benefit from a stock trade, in many cases is illegal.

I think he's talking about the product of thinking, not insider trading.

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#3) On February 24, 2009 at 1:11 PM, TMEBenBenBen (< 20) wrote:

How in the world can you say that CHB has a 'fair value' of even $1.75 ?!!!?

 

 Current liabilities exceed current assets by   >$37 million

 Net Tangible Assets, a whopping,   NEGATIVE$288 million

 Change in Cash and Cash equivolents since last quarter,   DECREASE of $39 million

 Quarterly revenue 'growth' yoy,   NEGATIVE  42%

Return on equiity,  NEGATIVE 98%

Long Term debt $300 million with a market cap of only $24 million

Current ratio of 0.8

 ttm operating cash flow NEGATIVE $15 million

 

This has a fair vlaue somewhere south of zero.......

 

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#4) On February 24, 2009 at 1:20 PM, Gumfactor (87.19) wrote:

I'm just not sure that I understand this argument, but let me see if I can try to paraphrase it:

 

Homebuilders are down.

Thus they must be good value.

CHB is down more than DHI.

Thus CHB is better value than DHI.

If CHB ever has a profitable quarter again, the stock will rise.

Thus the stock will rise.

So buy CHB.

 

Did I get that approximately right? Unfortunately there are too many flaws in that logic for me to even know where to start. But I think I'll simply say point out the one place where you're probably right:

*If* CHB *ever* has another profitable quarter, it's stock will rise. Also, if hell ever freezes, it will mean that there was such a thing as hell.

I should be kinder though: it's not like everything you've said is clearly wrong. Hell - what you've laid out may be exactly the way it ends up happening. But I wouldn't be betting my farm quite yet... 

 

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#5) On February 24, 2009 at 1:22 PM, jstegma (99.72) wrote:

I don't think you know what you are talking about.  This post is utter nonsense.

Good luck.

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#6) On February 25, 2009 at 10:17 AM, economics102 (91.64) wrote:

If you use the statistics on current profit to determine it's value, then yes it looks like a useless stock to own, but that was like taking statistics back during the housing boom and saying it was a great stock to own. If you want to know what it's worth look at it's profit back in 2000 when it was niether a housing boom or housing burst. The company is small enough to survive the downturn and big enough to reap the reward when the market turns back around. what it costs to build a house, is far less then what they are selling for. Once the market stabalizes profits will return. Obama wants to help the poor, Modular houses are cheaper and more suited for the people he wants to help. the future looks bright with an obama adiministration.

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