Area home sales bounce back
Business - Area home sales bounce back - sacbee.com
The area referenced in the title is the Sacramento region. I wrote a few days ago about some stabilization in the real estate market there, and this article from the Sacramento Bee is more positive news. The fact that caught my eye is that Sacramento county had its first year over year sales gain in 37 months. Many on the Internet are still embracing a continued housing slow down because year over year numbers keep falling. Here are some facts I gleaned from the Sac Bee article and related blog:
- April sales in Sacramento county were 24% higher than April 2007. Two other nearby counties also had year over year gains.
- There were 12,606 homes for sale in the 4 county region down from a peak of 16,262. The April sales totaled about 3,000 homes, showing a current 4 month supply.
- New home sales were still down with 454 sales vs. 687 in April 2007.
Anecdotal stories have buyers coming out as home prices have fallen back to 2003-2004 levels and aggressive bidding for foreclosure homes under $300,000. However, there will still be quite a bit of foreclosure inventory to absorb before more normal market conditions return. If the home builders are not building at this time and working off their inventory a positive pricing trend could be here sooner than many expect. Pricing has remained strong in the San Francisco area, which tends to start pushing people out towards the central valley, looking for affordable housing.
This information pertains specifically to the Sacramento region and one month does not a trend make. I report on it because I am familiar with the market and it was one of the worst “offenders” during the price run up.
New Energy Finance - NEX - Week in Review
This is my weekly recap of the NEX index, the WilderHill Global New Energy Innovation Index. The NEX is tracked by the PowerShares Global Clean Energy Fund (PBD: 25.85 -0.288 -1.10%). The results posted here are for the week that ended last Friday (May 16).
The NEX had a pretty spiffy week, gaining 6.3%, compared with the S&P 500, up 1.6% and the NASDAQ, up 1.1%. Digging up my posts for the past weeks since the recent low in mid March, the index is up 20.7% since those lows. In the different sectors, solar let the way up 7.9% with wind power close behind at a positive 7.5%. Of the seven sectors, only one was in negative territory, with hydrogen and fuel cells sliding 1.2%.
Here are the top and bottom stocks from the index for the week:
NEX top gainers since 13/05/08
Aventine Renewable Energy Holdings AVR + 37.5%
Zoltek ZOLT + 24.4%
Gushan Environmental Energy GU + 22.8%
Hansen Transmission HSN + 22.2%
Novozymes A/S Series B NZYM’B + 22.0%
NEX top losers since 13/05/08
Verenium VRNM - 8.9%Medis Technologies MDTL - 7.1%
EnviTec Biogas ETG - 6.7%
Zhejiang Yankon Group 600261 - 6.2%
Centrotec Sustainable CEV - 6.1%
Note: I currently do not have a position in any security listed.
Ship Finance has some good news!
I have considered Ship Finance International (SFL: 27.88 -0.38 -1.34%) a core component of this site’s income portfolio. The press release above announces the single most expensive sale/leaseback transaction in maritime history. The benefit to SFL after interest and principle payments is 32¢ per share. Ship finance will be borrowing $700 million and the balance will be out of company fund. The drillship will complete construction in June and be on a 15 year bare ship lease fully guaranteed by Seadrill Ltd. This is SFL’s first acquisition of a deep water drilling rig and I find the timing interesting after reading this article on Seeking Alpha recently: Petrobras is Hoarding the World’s Deep Sea Drillers
At the same time, SFL announced they will increase the quarterly dividend 2¢ to 57¢. This is good news after several quarters without an increase. Ship Finance is conservatively managed and has more than adequate coverage for the dividend. It is good to see them putting some capital to work to increase the return to shareholders. I am looking forward to the earnings release on Thursday! SFL is a component of this site’s Income Portfolio.
Note: I have a long position in SFL.
Selecting stocks for investment
I spent some time over the weekend scanning through the Fortune 100 Fastest Growing Companies for 2007 for companies that interest me. I would look at the company’s business, recent sales and earnings, and future earnings projections. No calculator, just an eyeball on growth rates vs. PE. It was interesting, since the list was compiled in mid 2007, how many companies on the list had had recent earnings set backs. While going through the list I noted some personal likes and dislikes of company attributes that cause me to look favorably or unfavorably on a stock.
Some of my dislikes:
- Companies that have business selling to other companies. There is something about a company that is reliant on another company or industry to manufacture good products and sell them profitability that I avoid. Even if the company is the best around and well run, bad economics or management by their customers can seriously affect the suppliers bottom line.
- Faddish retail companies. Clothing lines, beverages and restaurants. These can all lose ground to the next hot item if they do not come up with the next hot item themselves.
- I have a tendency to avoid all health care and pharmaceuticals. Although health care sucks up a huge portion of the U.S. GDP, I just feel the whole thing is propped up by ever increasing costs that will someday collapse. I am probably entirely paranoid here, but I do not invest in this area.
- Fast growing companies with no earnings set off warning bells in my head. It is my belief that it is easier for a company with hot products or in a hot sector to grow revenues than earnings. A hot company has to start bringing significant dollars to the bottom line before I get interested.
Some of my preferences:
- I gravitate to companies with market capitalization between $500 million and $2 billion, plus or minus. I believe companies this size are big enough to have established themselves, but too small for most of Wall Street to have found. Often they have between 1 and 4 analysts following them and good information is hard to find. Maybe I can find a nugget of news that shows me the market has miss-valued the stock.
- I like industries with products people and business must have: Energy, transport, gambling, banking., infrastructure. Well run companies in these business can often count on a certain built in customer base and work to maintain or improve margins.
- I get interested in a company that has a business or niche I have not previously heard of. This might be a company that has carved out a profitable niche by offering a unique product or service. I will read deeper to see if there is more to get interested in.
Once I find a company of interest I usually add it to this site’s Watch List. At some point I will come back to it and dig deeper into finances and their story. It may be the next day or weeks down the road. Right now energy companies are hot and anything to do with home construction is not. I have some of both on the Watch List to get back to as market conditions change. When I review deeper I may keep a stock on the list, remove it because I do not find a compelling reason to keep monitoring it, or move it to one of the portfolios I track here. One thing I try to keep in mind is that prospects change for companies, sectors and markets and it is important to keep options open.
A Tale of 3 Markets
May 2008 Lyon Press Release-Dist.pdf (application/pdf Object)
I have a personal interest in the Sacramento real estate market and check regularly for news of the market there. Today I found the press release linked above at the Sacramento Bee Real Estate Blog. Mike Lyon is the owner of the largest real estate brokerage in Northern California and I have found him to knowledgeable and interesting. I you have interest in more details of the Sacramento real estate market read the whole report, it is only 3 or 4 pages. This excerpt pretty much covers the tone of the report:
“The market is now being driven by three different factors affecting three separate price ranges,” said Michael Lyon, CEO of Lyon Real Estate. “Homes under $300,000 - especially foreclosure homes - are selling in a matter of hours with multiple bid and in under three months. Then we have homes above $300,000 and under $580,000 that are not in foreclosure but have low interest, low-down FHA programs to finance the sale and have inventory levels of under six months - this market segment is much better than it has been in the last two years. Finally we have those homes for sale in the non-conforming loan or Jumbo bracket, and inventory levels of around 20 months. With down payment requirements of between 20 to 30%, even if priced right, it can take two to three times longer to sell a home in this price-bracket than those homes priced under $580,000.”
“The good news in all of this lies in the rate of absorption for the foreclosure properties. If sustained, it will mitigate the effects of the 15,000 foreclosure homes still expected to come on the market this year. Many people who never dreamed of owning a home now have a chance, at least until the end of this year when these FHA programs sunset.
Notes on a couple of stocks
There are a couple of stocks I follow about which I would like to make a few comments. Tetra Technologies Inc. (TTI: 22.13 -1.05 -4.53%) released their first quarter earnings recently and City Bank (CTBK: 9.21 +0.13 +1.43%) has released nothing to tell me why the stock price is acting the way it is.
First, TTI: First quarter earnings were disappointing, off 68% from the previous year at a dime a share, actually worse than very low expectations. The stock price was hardly affected and has moved up nicely from about $15 at the end of March. On the conference call, management repeated their claim that recent restructuring will start to show in the 2nd and 3rd quarters with profits surpassing anything the company has done for several years. Management repeated their April earnings guidance of $1.30 to $1.55 for the year so the next few quarters need to show some serious gains. TTI earned 38¢ for all of 2007. If they start making their projected numbers, the stock has the opportunity to clear $25 later in 2008.
City Bank’s share price devaluation has me seriously perplexed. The stock started the year around $22 and has eroded ever since. CTBK is at the top of it’s peer group as far as banking ratios go and has 30+ years of profitable management. Only 37% of the float is institution owned, who, according to Reuters have been net adding to their positions. So it must be individual investors who are dumping their shares. Do they know something, or just running scared due to the share price? Earnings projections for 2008 remain stable at $2.20 to $2.40 per share and the 60¢ dividend will probably get a year end $1.00 boost if earnings are as predicted. These numbers give a current PE of 7 and a yield over 10%. I am tempted to add to my position, but worry that there is some unknown (to me) info out there that will seriously affect the bank’s earnings.
Final note: TTI is in oil services and CTBK is in banking, maybe that alone is causing one to go up and the other to falter.
Note: I have a long position in CTBK, none in TTI.
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