FirstAlert[tm] 5/19: Buying Lowe

May 19, 2009 (FinancialWire) (By Philip Holmes) — Stocks ended higher on good news on homebuilders and banks. Among the juicy tidbits: Citigroup (NYSE: C) upgraded builder Lennar Corp. (NYSE: LEN) while Goldman Sachs (NYSE: GS) upgraded Bank of America (NYSE: BAC).

The Dow Jones industrial average closed at 8,504.80, for a gain of 235.44 points on the trading day. The S&P 500 index rose 26.83 points for finish at 909.71, while the Nasdaq composite index jumped 52.22 for a close at 1,732.36.

Homebuilders were the stars of the show after the industry’s trade association reported a second straight month of rising confidence among companies big and small. Spirits were up in May due to the perceived value of an $8,000 federal tax credit for first-time buyers.

“Perceived” is a key word: the homebuilder’s index measures confidence, not closed sales, and it remains at a low level. The index rating for single-family houses rose to 16 in May, but anything below 50 signals a relative lack of confidence. Still, it was enough to cheer investors.

To reinforce the point, home-improvement retailer Lowe’s reported getter-than-expected earnings. The company reported first-quarter earnings per share of $0.32. That’s down from an EPS of $0.41 over the same period in 2008 but better than the EPS of $0.25 that Wall Street analysts were expecting.

Do homebuilders have good reason to be optimistic? There’s always been an argument for the homebuilders leading a revival in housing. Their stocks were beaten up way before the financials’ were, and badly. Right now might be a good time for some of them to raise money through the sale of equities, as M/I Homes is doing. They’d seem like a bargain if there were any “green shoots” in the sector, as there now seem to be. And with cash in hand… 

Homebuilders have more pricing control than private sellers, (how much depends on how much they paid for land originally) and can offer attractive incentives to all of those first time buyers being wooed with tax incentives.

Having cash in hand also allows the builders to go after bargains on raw or partially developed (bubble era disaster) land, scale down on house size and amenities, and position themselves for the next wave of cost-conscious buyers - especially those with government incentives motivating them.

Compare their situation to the banks, who have to hold onto REO inventory lest the world learns what their assets are really worth, or the Average Joe homeseller, who has to jump through hoops to close a short sale (the two phenomena are related). In terms of relative market advantage the homebuilders have it good.

The Investrend Earnings Calendar features Analog Devices (NYSE: ADI), expected at $0.09 a year ago versus $0.45 a year ago; DHT Maritime (NYSE: DHT), expected at $0.29 versus $0.25 a year ago; Hewlett-Packard (NYSE: HPQ), expected at $0.86 versus $0.87 a year ago; Home Depot (NYSE: HD), expected at $0.28 versus $0.41 a year ago.

The Investrend Economics Calendar lists Housing Starts & Building Permits for April (8:30 a.m.), Weekly Chain Store Sales (8:55 a.m.).

The Investrend Events Calendar showcases A, CELG, GOLD, HUM at Deutsche Bank Healthcare Conference; ABB, TXT, TNB, UTX at The Electrical Products Group Spring Conference; ALL Shareholders Meeting; BAS, HAL, CVX, FTI at UBS Oil & Gas Conference; CAST, COCO, HOGS, BJGP at Oppenheimer China Dragon Call Conference; CREE, AMT, COGT, ESLR at JPMorgan Global Technology, Media and Telecom Conference; JPM Annual Meeting of Shareholders; MO Shareholders Meeting; OREX, CTIC, PARD, BPAX at Biotechnology Industry Organization International Convention; PFG Annual Meeting of Shareholders; WERN, ABFS, CNW, FWRD at Wolfe Research Global Transportation Conference; WSM, BKD, RAX, FACT JMP Securities LLC Research Conference.

The Investrend Money Index is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ 50 Most Actives indicate the direction in which the mass of money is flowing. Last session’s trading showed 45 advancers versus five decliners. Advancers were led by Financial Bull 3x (NYSE: FAS) up 17.96%, Ultra Real Estate Pr (NYSE: URE) up 15.64%, M G M Mirage (NYSE: MGM) up 13.95%, Oceanfreight Inc. (NASDAQ: OCNF) up 12.75%, Fifth Third Bancorp (NASDAQ: FITB) up 12.54%, Ultra Financials Pro (NYSE: UYG) up 12.00%, Regions Financial Cp (NYSE: RF) up 11.96%, Las Vegas Sands Corp (NYSE: LVS) up 11.59%, Bk Of America Cp (NYSE: BAC) up 9.93%, Us Bancorp (NYSE: USB) up 9.51%, On Semiconductor Corporation (NASDAQ: ONNN) up 9.49%, Companhia Vale Ads (NASDAQ: VALE) up 8.35%, Wells Fargo & Co New (NYSE: WFC) up 8.28%, Gen Motors (NYSE: GM) up 8.26%, Morgan Stanley (NYSE: MS) up 8.23%, E*Trade Financial Corporation (NASDAQ: ETFC) up 8.22%, Lowes Companies (NYSE: LOW) up 8.08%, Huntington Bancshares Incorpora (NASDAQ: HBAN) up 7.78%, Jp Morgan Chase Co (NYSE: JPM) up 6.73%, The Charles Schwab Corporation (NASDAQ: SCHW) up 6.45%, Amer Intl Group Inc (NYSE: AIG) up 6.40%, Nvidia Corporation (NASDAQ: NVDA) up 6.06%. Decliners followed Financial Bear 3x (NYSE: FAZ) down 18.31%, Ultrashort Real Esta (NYSE: SRS) down 16.19%, Ultrashort Financial (NYSE: SKF) down 12.10%.

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Quote of the Day: “[A successful parent is one] who raises a child who grows up and is able to pay for his or her own psychoanalysis.” Nora Ephron

Today is: Boys Club Day.

Happy Birthday: Johns Hopkins, Malcolm X, Jim Lehrer, Nancy Kwan, Dick Scobee, Nora Ephron, André the Giant, Archie Manning.

Today in History: Anne Boleyn, the second wife of Henry VIII of England, was beheaded in 1536 for adultery. The town of Montreal was founded in 1604. King George II of Great Britain granted the Ohio Company a charter of land around the forks of the Ohio River in 1749. Never-explained complete darkness fell on Eastern Canada and the New England area of the United States in 1780.

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