It’s no surprise that stocks finished at the lows of the day
on Friday, as the Fed cowardly decided not to raise rates this month, putting
even more uncertainty in the market, something that investors absolutely hate. Now,
investors are left wondering when exactly is the “perfect time” to raise rates.
The Fed blamed global economic uncertainty for not raising rates this month,
but who’s to say something new won’t come up during their next two meetings in
October and December? What if China really is a lot worse than we thought? Will
the Fed continue to wait even though the US economy doesn’t justify that
decision? The reality is, the US economic data DOES justify a rate hike, and a
0.25% increase won’t really have a negative affect on anything. But instead,
the Fed lost all credibility by not acting on the strong data after saying they
were data dependant, and we’re now left wondering and debating for at least
another month.
So, now that interest rates will continue to remain low for
what will likely be at least another three months, I believe that if you’re
looking for a new investment for your portfolio, you should look no further
than the housing sector. You already know that I think Home Depot is best of
breed and will continue to be so, but there are other areas in housing that
could yield great returns. If you’re looking for a homebuilder, take a look at
Lennar (LEN). Now, Lennar does report Q3 earnings on Tuesday morning, so I
would suggest waiting a little to get in, but you should definitely keep your
eye on this one. Analysts are expecting Lennar to show a 21% increase in
revenues and for quarterly earnings to come in relatively flat YoY. However,
for the year, analysts expect the company to grow earnings by 16% to $3.25/share.
Lennar is one of the biggest players in the multifamily
rental properties, which has been red hot for the last couple years, being a
big reason the stock is up 29% in the last 12 months and up about 15% YTD. The
rental market has not shown a lot of signs of cooling down, and with a rise in
student loans, new college graduates are unable to secure a mortgage, forcing
them to continue to rent.
On Friday, Lennar closed down 2.30% at $51.75, just below
the 78.6% Fibonacci retracement of $52.07. With a 13.5% short interest in the
stock, a negative reaction to earnings could give you the perfect opportunity
to get in this name. The price I would be looking to be a buyer at is between
$48-$49. Lennar closed just above $48 on Tuesday, August 26, which was the day
after the Monday market crash, and a level the stock held on the following
Wednesday. The 61.8% retracement is at $48.96, which since closing above on
August 27, is a level Lennar has held onto. The low of Monday’s crash is
$46.77, which is exactly the 50% retracement, so use $46 as your sell level and
you have a maximum risk of 6%. My 12 month target for the stock is $63, giving
you a potential upside of 29% if you buy at $49.
The Fed is giving you a chance to take advantage of one of
the big bright spots in the US economy, housing. After you add Home Depot to
your portfolio, take a look at Lennar.
My current positions: Long
Gilead Sciences (GILD), Starbucks (SBUX), Facebook (FB),Time Warner (TWX), NXP
Semiconductors (NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye
(MBLY), Jack In The Box (JACK), Under Armour (UA), United Rentals (URI),
Regeneron (REGN), Apple (AAPL), Southwest Airlines (LUV), Dow Chemical (DOW), L
Brands (LB), Costco (COST), Amgen (AMGN), Home Depot (HD), Allergan (AGN),
FireEye (FEYE), Humana (HUM), GoPro (GPRO), Skyworks Solutions (SWKS), Disney
(DIS), Lockheed Martin (LMT), TJX Companies.
Jeff Lewison
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