Market Report: My Next Profitable Idea
In my last Market Report titled, “The Weak Could Get Weaker,” I gave you some very simple advice: Buy put options on Bear Stearns Companies (BSC:NYSE). Specifically speaking, this is what I wrote to you last week:
“As you can see from the chart, BSC has moved aggressively below both its 50-day and 200-day moving averages -- which now puts the stock in no-man’s land. To be honest, the next logical support point could come at $100 or even $85. It’s anyone’s guess…”
I sure hope you followed my advice, because since last week’s Market Report was published, BSC has dropped another $25 on an intra-day basis, and any put options that you bought could have tripled in value. But to be honest with you, that’s yesterday’s news.
So here’s my next profitable idea -- one which you can act on immediately.
The strategy involves the homebuilding sector, and specifically news coming out of luxury builder Toll Brothers (TOL:NYSE). This morning, the company reported that its Q3 revenues fell 21% to $1.21 billion. That would appear like bad news, but the silver lining is that analysts at Thomson Financial were calling for revenues of $1.08 billion. So TOL actually beat expectations!
On that news, TOL stock not only popped 5%, but it also gave a shot of life into the entire homebuilding sector. As I write, nearly every homebuilder company is making a strong advance -- but despite this rally, most of these names are still down 30% this year. And that opens up an opportunity for you.
You see, a company like TOL has more than $700 million in cash and $1.1 billion available under its bank credit facility -- all with no “major debt” due before 2011. So, if you have the patience to withstand the current slowdown period, you could be looking at a major opportunity in the homebuilding sector -- and the best way to take advantage of this opportunity is outlined in a new special report I just posted for Bottarelli Research members titled, Buying With Blood in the Streets: a Once-in-a-Decade Opportunity to Play a Housing Rebound by January 2010.
In this report, posted August 2, I recommended January 2010 call options on DR Horton (DHI: NYSE). The chart below tells you what happened next:
As you can see, DHI is making a strong pop today, but the gains could be just beginning.
I recommend that anyone interested in using the super-low valuations in the homebuilding sector buy longer-dated call options on a major homebuilder stock.
With this strategy, you’ll have time to let the recovery happen -- and reap sizable profits in the process!
Bryan
