Homex Development Corp. (ADR) (HXM)

slbutton (99.78) Submitted: 11/10/2007 1:24:56 PM : Start Price: $59.32 HXM Score: -21.05

Homex has two things going for it. One is demographics. Goldman Sach's in-house eggheads project that Mexico will be the world's fifth-largest economy by 2040. The second is that, in early November of 2007, concerns over the sub-prime mortgage meltdown in the U.S. (and the worse Alt-A meltdown quite possibly to come) have led investors to flee homebuilders en masse. I'm "short" (in CAPS) quite a few homebuilders myself, but I think Homex is a different story: earnings of 2.80/share, growth forecasts of 22% for the next five years, ROE > 20%, debt higher than I like to see, but under control (0.443 debt/equity), strong insider ownership. Even earnings growth of only 12%, and no growth in book value, yields a 2012 "fair" price which represents an annualized return of about 15% (NB: these calculations are based on EPS and book value, not FCF and cash on hand).