Homebuilder Company: Toll Brothers (TOL)

Discussion in 'Growing and Managing a Business' started by Scottypops, Aug 3, 2010.

  1. Scottypops

    Scottypops
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    Talk of a double dip recession and economic slowdown doesn’t mean there isn’t money to be made. In fact, I’ve located a potentially golden opportunity coming up in the housing market. You could make $5 or more per share within the next few months.

    At a time when homebuilders are reeling from massive drops in the market, there’s one company that has cash on hand and stands out from your run-of-the-mill homebuilder. What’s even better is there’s a technical analysis indicator for buying this stock as well.

    Let’s start with a macro picture real quick and look at two key indicators: building home permits and housing starts. This will give us a slight clue as to where the market may be heading. According to the latest data out from the government, building permits in May 2010 were 4.4% higher than May 2009, so we have year over year growth. Additionally, housing starts were a healthy 10% higher (YoY).

    The play here is Toll Brothers Inc (TOL). As of this writing, the stock is closing in on its 52-week low of $15.19 and is trading around $17.80. There’s a lot of speculation that the company could return to profitability soon. With a one-year target of $22.81, there’s room for profit here.

    Unlike your regular homebuilder, Toll Brothers stands out in the luxury market. They design, build, market and arrange financing for single-family homes in the USA.

    On a technical note, the next 4-6 weeks are crucial. I don’t advise buying Toll Brothers just yet. It should go down more. And that’s when you’ll buy and play for a $3 – $5 per share gain. Looking over the past couple of years on the charts we can see that the typical pattern for TOL is a dip in June/July followed by a sharp increase in Aug/Sep. Take a look at September 2008 and 2009. September is the peak month.

    If history holds, there will be a very nice profit coming your way with TOL. I’m looking for a rather significant selloff in July. There are earnings reports, unemployment and other significant evens on the horizon. Watch for these news events and the action that follows them.

    My ideal target for buying TOL is around $16 per share. If we see price action like last year, TOL should touch the $15 line. In 2009, it did this and promptly went to about $23 in September—that’s an $8 per share gain. The trick here is to not be greedy or jump the gun. I think there’s an opportunity for a safe profit. If you’re very conservative, wait for clear market signals and shoot for $2 per share. If you’re risk appetite is a little higher, a $4-$6 per share profit could be likely.

    What I like most about this stock trade is that it’s not a long-term play, it has technical analysis support, it has fundamental analysis support and there’s economic indicator support. Keep your eye on Toll Brothers over the next couple of months. It’s going to be a nice play.

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  2. Kay

    Kay
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    Really? What's that statement based upon? I see no reason to believe any of the housing stocks will rebound anytime soon. Not even their own Association thinks it will happen in the near future.

    See this Wall Street Journal Online cached story from July 19.


    If consumers are still unconvinced about their job security, they're not going to buy a brand new house when they have other, cheaper options. That's the trouble with technical analysis as opposed to fundamental. It doesn't take into account what's going on in the real world and bases its predictions on past stock movements. The charts could still say a company was ready for an upswing even if their HQ burned down the day before.

    (Anyone interested in learning more about the differences between fundamental and technical stock analysis should look at ChartSchool's information on this.)

    As Marketwire also pointed out just today, the housing market's struggling on several fronts.

    Sorry but can't agree with that at all.
     
  3. Fergal

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  4. Fergal

    Fergal
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    The price has dropeed to $17.24, anyone who bought the shares earlier in the week will have lost money by now :(
     

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