Super-bullish news for U.S. housing... How to buy $14 million of land for less than $1 million... The saga of the Dell short sale... Paying taxes on a winery with options...
Digest readers know we're bullish on housing. Steve Sjuggerud has been urging DailyWealth and True Wealth readers to buy a house all year. As he wrote in the February 21 DailyWealth...
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The basic story is that housing is an incredible value right this moment: With mortgage rates at record lows TODAY (at 3.87%) and with a record "bust" in home prices, housing is more affordable than ever. PLUS, we're at the "puke" point – where banks are giving up properties at any price, just to get rid of 'em. PLUS, the government is getting in on the act, trying to help. |
We wrote more about Steve's housing thesis (and several bullish developments in the sector) in the August 9 Digest. And in the August 10 Digest, we discussed Dr. David "Doc" Eifrig's bullish view on housing... In his most recent Retirement Millionaire, Doc called housing "the best opportunity [he's] ever seen for conservative buyers."
Today, the CEO of luxury homebuilder Toll Brothers, Douglas C. Yearley, expressed his optimism about U.S. housing. His company announced $61.6 million in earnings for the quarter, up from $42.1 million a year ago. Revenue rose 41% in the quarter to $554.3 million. The company also delivered 963 homes in the quarter – a 39% increase.
Yearley told investors...
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We are enjoying the most sustained demand we've experienced in over five years. In the past three quarters, the values of our signed contracts were up 45%, 51%, and now 66% compared to FY 2011. Three weeks into our fourth quarter, our non-binding reservation deposits (a precursor to future contracts) are up 59% compared to the same period in FY 2011. |
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The pace of our contract growth has far exceeded the national housing data as we are gaining market share. We attribute this to the strength of our brand, our excellent land positions, our proven reputation for reliability and quality, our strong balance sheet, and our seasoned management team. Additionally, as the only national home building company focused on the luxury market, we are facing limited competition from the capital-constrained small and mid-sized private builders who are our primary competitors. |
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We believe the housing recovery is being driven by pent-up demand, very low interest rates, and attractively priced homes. Customers who have postponed buying for a number of years are moving into the market. With an industry-wide shortage of inventory in many markets, we are enjoying some pricing power. |
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With operations in 20 states and 50 markets, we see the recovery occurring across most of our regions. With over 39,000 lots owned or controlled, a wide range of product lines and $1.7 billion of cash, marketable securities and available credit, we are positioned for growth. |
Shares of Toll Brothers are up more than 3% to a new 52-week high. In the March 2011 issue of True Wealth, Steve recommended subscribers who weren't in a position to buy physical property invest in the iShares Home Construction Fund (ITB). The exchange-traded fund holds shares of the nation's biggest homebuilders (including Toll Brothers) and home-improvement retailers Home Depot and Lowe's.
ITB is up 2.5% today to a 52-week high. True Wealth readers are up 33% on the recommendation.
Steve is still bullish on housing... And he's personally investing in the opportunity. I asked Steve this morning where he's finding values. Here's what he said...
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I've personally been positioning myself one step ahead of the homebuilders... |
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I've been buying (and trying to buy) highly desirable raw land in Florida. My latest offer is on a waterfront property that sold for nearly $7 million at the peak. I am going back and forth on price with the bank that owns it... and I hope to end up with it for around $1 million. |
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What I'm doing is speculating – I will certainly have to hold it for a few years. Nobody needs to build on it now. But it is a great property, at potentially a great price. |
Steve said he and a group of investors also found a 200-acre property in north Florida that was under contract in 2008 for $14.4 million. It didn't sell because the owner was holding out for $15 million. Steve purchased the land about two months ago for less than $1 million.
Like the land Steve described above, this is property he'll probably have to hold for years. But Steve found a loophole so his carrying costs are almost zero. The property is zoned for industrial use, but it includes timberland. So Steve has requested an agricultural classification. This classification will drop his taxes on the property from $50,000 to $1,000 a year.
Earlier this month, we told you hedge-fund billionaire John Paulson was buying land on a large scale. Paulson recently purchased 875 acres of a resort community near Las Vegas for $17 million. He's been buying lots of raw land for his Paulson Real Estate Recovery Fund.
In May, DailyWealth Trader co-editors Amber Lee Mason and Brian Hunt told readers to short shares of computer giant Dell. We borrowed the idea from master short-seller, Jim Chanos, the founder of hedge fund Kynikos Associates.
And at the Grant's Interest Rate Observer conference in April, Chanos said Dell was a value trap (a stock that seems cheap, but is flawed). Here's what Amber and Brian wrote in the May 3 DailyWealth Trader...
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As Chanos told the audience at the prestigious Grant's Interest Rate Observer conference last month, tablets and smartphones are stealing growth from the PC market: In 2011, shipments of mobile devices were up 79% over the previous year. PC shipments were up less than 3%. Dell gets about three-quarters of its revenue from PCs and "peripherals" like printers and monitors. This makes the company extremely vulnerable to the shift toward tablets. |
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Despite the rocky outlook for its market, Dell shares have been climbing. Shares are up 42% since their 2010 bottom. |
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At less than eight times forward earnings, Dell is a candidate for our "safe, cheap tech" label. And it's got a nearly $14 billion cash hoard. These attributes have many investors buying shares. But Chanos argues it's just a "value trap." Investors believe the company will eventually distribute that cash... "But that almost never happens," he says. |
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And the big picture problems with the market are going to eventually bring Dell down: "It's happening before your eyes," he says. "It's a declining business. Ultimately, margins will compress. And there will be some casualties on the road." |
Chanos called Dell a "serial restructurer," which keeps the company from addressing its core problem – the decline in PC sales. And three weeks after DailyWealth Trader published its short recommendation, Dell announced it had engaged in a reorganization to train its staff to sell a complement of Dell products instead of specializing in individual products.
Shares dropped 18% on the news.
On July 2, Dell announced it would buy enterprise management software maker Quest Software for $2.4 billion in cash. This was yet another "reorganization." Dell's specialty is computer hardware. Shares fell 1%.
And last night, Dell announced earnings below Wall Street's expectations. PC and laptop sales fell 14% in the quarter. Overall earnings fell to $732 million (or $0.42 a share) from $890 million. Analysts expected $0.45 per share.
Dell also warned that revenues for the current quarter would drop 2%-5% to around $14 billion. Analysts were expecting an increase to $14.9 billion. The company also dropped its earnings forecast for the year to $1.70. It predicted $2.13 in February, and Wall Street expected $1.90.
Shares dropped around 7% today to 52-week lows. DailyWealth Trader readers are up 29% on the short recommendation.
DailyWealth Trader readers have made money following several big trends this year... They're up 13% since April, catching the uptrend in biotech. They made 13% since March going long utilities. They made 12% in April going long mortgage REITs. And they're up 12% on European health care since last month.
In addition to issuing long and short stock recommendations, Amber and Brian also discuss options trades. In July and August, they closed eight naked put and covered call trades. The average gain was 12% with only one losing trade.
In short, DailyWealth Trader collects some of S&A's best trading ideas. Amber and Brian read everything we publish and pull some of the best ideas to share with DailyWealth Trader subscribers every day.
If you're active in the markets, this daily insight is invaluable. And you can receive this service for a low monthly fee. Even if you decide not to sign up, you should still watch this video we've prepared, outlining one of our favorite trading strategies. It's completely free. You can watch the video here...
New 52-week highs (as of 8/21/12): Guggenheim BulletShares 2015 High Yield Corporate Bond Fund (BSJF), BlackRock Corporate High Yield Fund (HYV), Sandstorm Gold (SSL.V), and Medtronic (MDT).
How has our advice helped you?... One reader sends kudos to S&A Short Report editor Jeff Clark for one of his gold-stock options recommendations. Send your e-mail to feedback@stansberryresearch.com.
"As I was reading the latest issue of Retirement Millionaire, I focused on the part about car rental insurance. My wife and I are moving to another state and had a reservation booked already. I called about getting insurance through the credit card company as opposed to through the rental company (as you recommended). Not only did we get insurance for a fraction of the price, but my credit card company was running a deal through the same rental car company we had booked our reservation!
"I calculated the total savings to be about $450, or about 50% less than we were going to originally spend. Thank you so much." – Paid-up subscriber Beau
"Thank you, Jeff! Sold ABX [calls] for 4.05 — bought at 1.70 — 238% in 13 days. California property taxes on my vineyard are too high, but now in the bank!" – Paid-up subscriber Henry Matthes
Regards,
Sean Goldsmith
New York, New York
August 22, 2012