MDC Holdings, Inc. (MDC)

MDC offers the ability to take advantage of time arbitrage -- buying when the short term outlook is bleak but the long-term outlook is better. Current negative sentiment makes it hard to determing how MDC's stock will do in the short term, but at today's prices patient investors with an eye towards the long term should enjoy outsized returns.

Amongst the wreckage, MDC stands apart. With 2B in liquidity and the savvy, opportunistic nature of its head Larry Mizell, MDC currently sits in the cat-bird seat while its less conservative peers reap their own reward for their idiotic land speculation towards the end of the housing bubble.

As the market approaches its most desperate straits expect MDC to aquire highly desirable land and options on land at rock bottom prices, putting the builder in an enviable position as the market recovers...and fueling above average growth for years to come as it takes market share (from both public and private builders) and benefits from its improved cost structure and scale going forward.

MDC's strong inventory/sales, and debt/sales ratios coupled with its strong cash generation capability put it in a league of its own as far as capitalizing on other builders distress. That's not to say that MDC has not or will not continue to feel the effects of this nasty downturn, but once again, considering the quality of this business (both qualitatively and quantitatively) and its current strategic positioning when things begin to recover (who know's exactly when this will happen but there's no doubt it eventually will) I can't imagine this stock below today's price 5yrs from today. This truly is a wonderful business -- with a secular 15 - 20% internal top and bottom line growth rate, a conservative cash rich balance sheet, a long paper trail of excellent ROIC, a defensible (and becoming more so every day) market position, significant barriers to entry, and no threat of chinese or other foreign competition. It's always darkest before dawn, and in my opinion we have reached the point of maximum pessimism for this company (although I am not so sure about many of it's competitors). I am no soothsayer but by the end of '08, MDC should trade hands at levels significantly above today's...