New Home Sales Down
This morning the new home sales figures for November were released, and they will not spread any holiday cheer (unless you are selling short). On a seasonally adjusted annual rate basis, new home sales plunged to 647,000 from 711,000 in October and 987,000 a year ago. In addition, the October numbers were revised downward from the originally reported 728,000.
Nationwide it was a 9.0% decline for the month and a 34.4% decline year over year. However, for the month, there were big regional disparities. Worst hit was the Midwest, down 27.6%, followed by a 19.3% decline in the Northeast. The South was down 'just' 6.4% and the West was actually up 4.0%.
Keep in mind these numbers, particularly the regional numbers, come with huge standard errors attached to them. They tend to be revised heavily and change a lot from month to month. On a year-over-year basis the sales declines are much more consistent from region to region, with the Northeast faring best at a 28.1% decline and the Midwest the worst (-38.7%), with the South (-34.8%) and the West (-33.8%) in between.
There has been a little bit of progress on the raw inventory front. On a seasonally adjusted basis, it is down 1.8% from October and down 6.8% from a year ago. However, a small decline in inventories and a big decline in sales is a recipe for a climbing months of supply. Currently there a 9.3 months of new houses on the market, up from 8.8 months in October and 6.5 months a year ago.
What the market really needs now is for every homebuilder to just go on sabbatical for a full year. That, of course, will not happen; there will still be some building going on, even if it is economically totally irrational to happen.
Even though every major homebuilder is selling for less than book value, the book values really belong on the fiction shelf. Until we start seeing a few of the major publically traded homebuilders declaring bankruptcy, it is too early to enter the group.
Yes, there will be money to be made on the way back up, but the time to buy is probably not until late 2008 at the earliest. For now, use any short covering rally in the following stocks as a chance to get out or to short them yourself: D.R. Horton (DHI), Lennar (LEN), Standard Pacific (SPF), Beazer Homes (BZH), Pulte Homes (PHM), Ryland (RYL), Toll Brothers (TOL) and KB Homes (KBH).
Grainger Target $92
An update has just come out today on W.W. Grainger, Inc. (GWW), in which Zacks services sector analyst Mario Ricchio is stating his Hold rating on the company. We excerpted the following details:
'W.W. Grainger, Inc. reported third quarter EPS of $1.29, up 20.6% from the year-ago level, on the back of sustained sales growth in all the three segments, profitability from market expansion initiatives, product line expansion, and share buybacks. New product offerings and SAP initiatives are expected to boost profitability over the next few quarters.
'Nevertheless, the company's operating expenses remain high. Moreover, the stock is overextended, trading at a premium to the industry median multiple and its peer group. Over the last five years, Grainger has traded at a premium to the S&P 500 with an average one-year forward P/E of 20x. At the current price, GWW shares are trading at 18.2x our 2007 earnings estimate of $4.97 per share, in line with the industry median multiple but above its peer group.
'The combination of an end-market recovery and the positive impact of new initiatives are driving top-line growth.
