Hope everyone had a great weekend. We are looking forward to another great week ahead of us. On Friday, we finished out the week with a few plays. We were able to pull off a solid break even on RIMM after things looked bleak in Thursday’s after hours. We had a very positive Short Sale in Oshkosh Corp. that was worth nearly 3%. We took a small loss in a Buy of Alkermes (ALKS), but we also had a new Longterm Rating in Align Technology that was initiated as a Hold with a price target at $22.
Let’s get into a Buy Pick for this morning. We will be looking at a Play of the Week as well today…
Buy Pick of the Day: Pulte Homes Inc. (PHM)
Analysis: The big news of this morning is the Lennar Corp. (LEN) earnings. The company moved to profitability in Q3 of 2010 as the company reported an EPS of 0.16 vs. the expected 0.06. Lennar reported a 15% rise in revenue and saw the average home price increase $10,000 in the quarter. The company did see a slip in total sales, but that was countered by the rise and lower costs of doing business. The news has sent a nice boost in pre-market to all of the homebuilders, and I expect them all to thrive today. One that stands out to me, however, was Pulte Homes (PHM).
The company has moved under 2.5% this morning, but it has a very similar makeup of homes as Lennar. The company, additionally, has a lot of room to grow as it, among other homebuilders, took a major hit last week to close out the week. The.png)
combination of a similar company that is not moving like the 5-6% pre-market that other companies are as well as a significant undervaluation makes Pulte Homes (PHM) attractive.
Pulte Homes sells to first-time, second-time, and move-up buyers, so it has that sort of medium-low to medium-high end mix of homes, which is very similar to Lennar Corp. Lennar operates with a lot of first-time and second-time home buyers. The company also operates multi-level residential buildings. The companies’ similarities would tend to make me think that Pulte would thrive on Lennar’s earnings, and it is but not to the extent as others.
Technically, Pulte dropped around 7% in price over the past week and moved to its lower bollinger band. The stock’s RSI dropped far below 50 to 35, and it is severely oversold. The stock has upward movement to the 8.80s – 8.90s without any resistance whatsoever, so if things can get moving, then PHM will have a very great day.
One final catalyst to the stock will be the fact that the NAHB Housing Market Index is being released this morning at 10 AM, and it is expected to be better than the July reading at 14 vs. 13.
Get in early before it takes off this morning!
Entry: We are looking to get involved at 8.40 – 8.50.
Exit: We are looking to exit for a 2-3% gain.
Stop Loss: 3% on bottom.
Good Investing,
David Ristau
