Why are smart money managers like Bill Miller (Legg Mason Value Trust) and David Einhorn (Greenlight Capital) out buying up homebuilders?
Miller, who has outperformed the S&P for 15 years in a row, has been buying like crazy and now owns 15% of Ryland; 11% of Beazer; 9% of Centex and 8% of Pulte. Einhorn owns 10% of MDC Holdings and is it’s second largest shareholder next to the CEO.
Talk about going against the herd. I read somewhere that Einhorn thinks MDC is worth about 2.5 times more in share price than where it is now trading. BS? Or do they know something we don’t?
Is it because homebuilders are trading at dirt cheap multiples of earnings, have low debt to capital ratios and are swimming in cash from the huge runnup in housing prices over the last few years?
If you just look at homebuilders from a value standpoint, they look pretty darned good with many showing trailing PE’s less than 7. William Lyon Homes – WLS – is trading around 4.5 and it’s CEO just upped his offer to purchase all the outstanding shares by about 7.5% – from 93 to 100. Why?
I just have to ask myself: What are all those cash rich homebuilders with strong financial statements going to do with all that cash? They sure aren’t going to stop building (or selling homes), are they?
