Thursday Oct 26, 2006

Bad news and good news on U.S. real estate

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Bad news and good news on U.S. real estate

by J. Christoph Amberger

The median price for a new home sold in September came in at $217,100. This reflects a drop of 9.7% from a year ago and is the lowest median price for a new home since September 2004.

Median prices for existing home had fallen 2.5% last month.

That sounds like bad news. But it really is not as bad as it sounds: Owners of exiting homes make $2,500 less for every $100,000 they thought their home is worth. Considering prices in some cases had almost tripled in five years, however, there is still plenty of margin left in most cases.

The median price decrease in new homes is mostly bad news for home builders... and are a simple manifestation of prices catching up with demand. Lowered prices are already translating into increases in demand: New-home sales rose in September, by 5.3%, to an annual pace of 1.075 million, according to the Commerce Department. Demand surged for properties in the $150,000–$200,000 range... doing its numbers magic on the median.

My guess is that median prices will continue to decline... not because the overall value of U.S. real estate is being eroded, but because lower-priced properties will play a more dominant role in the coming years... for the simple reason that the demographic deck is now stacked in favor of younger buyers: The Echo Boom is starting to push into the housing market... the first wave of college housing swelling as we speak.

 
-- Bryan Bottarelli wrote me this morning:

“I wanted to follow up on an investing opportunity that I brought to the attention of your readers in a past DMA alert. Specifically, I’m referring to the current trading action of First Data (FDC:NYSE) and Western Union (WU:NYSE).

“As you know, I hypothesized that buying shares of First Data posed an interesting opportunity because they were getting ready to spin off Western Union. Any shareholder of FDC would then get assigned shares of WU, essentially taking one pie and splitting it into two separate pie entities. If any of your readers purchased FDC stock, I’m happy to report that both FDC and WU shot aggressively higher in yesterday’s trading, which could now be handing your members a gain on their total position.

“Starting with FDC, the stock rallied based on strong Q3 earnings and a $700 million share buyback. In Q3, revenue rose 9% to $1.8 billion, beating the forecasts of $1.79 billion. Not to be outdone, Western Union also shot up yesterday on the heels of their first earnings report since spinning off of FDC. The leading money transfer firm in the world managed to also beat expectations by 6 cents a share, which was applauded on Wall Street.

“I understand that your readers could all have different entry prices, but you may want to tell them that if they are showing a gain, they should consider taking their profits off the table.”

Consider yourself notified!

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Earnings Announcements Friday, October 27, 2006

Applebee’s downgraded by Jefferies & Company from Hold to Underperform.

Cablevision downgraded by Citigroup from Buy to Hold.

General Motors downgraded by Calyon Securities from Buy to Neutral.

Harrah’s downgraded by Stifel Nicolaus from Buy to Hold.

Murphy Oil downgraded by UBS (Neutral to Reduce) and by AG Edwards (Buy to Hold).

Red Hat downgraded by Credit Suisse (Outperform to Neutral), by Sun Trust Robinson Humphrey (Buy to Hold), and by JMP Securities (Market Outperform to Market Perform).

Renovis downgraded by Maxim Group from Buy to Sell.

Tractor Supply downgraded by Thomas Weisel (Outperform to Peer Perform) and by Wedbush Morgan (Buy to Hold).

Altria upgraded by AG Edwards from Hold to Buy.

Komag upgraded Bear Stearns from Peer Perform to Outperform.

Zygo upgraded by Maxim Group from Hold to Buy.
 
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Unlock Dates for October / November 2006

10/31/06 – Delek US Holdings is unlocking 10 million shares.
11/8/06 – Basin Water is unlocking 6 million shares.
11/13/06 – Restore Medical is unlocking 4 million shares.
11/14/06 – Burger King is unlocking 25 million shares.
11/21/06 – Mastercard is unlocking 61.5 million shares.
11/29/06 – Luna Innovations Inc is unlocking 3.5 million shares.

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Upgrades and Downgrades

Alltel Corporation, Bel Fuse Inc, Cardinal Health Inc, Chevron Corporation, ITT Corporation, Orbital Sciences Corporation, and Zoom Technologies Inc are releasing earnings.

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Quote of the Day:

“The Army has changed their slogan from ‘Army of One’ to ‘Army: Strong.’ A number of other countries have done the same. India is now ‘We fix more computer by 9:00 AM than most do all day.’ Switzerland is ‘See what a pocket knife, scissors, corkscrew and little nail file can do for you.’ Morocco, ‘Less talk, more rocco!’ And Cuba, ‘Invading America one raft at a time.’”

- Jay Leno, Oct. 24, 2006

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