Monday, August 29, 2005

Stock Play of the Week: Shorting Home Builders

Americans are sold on their homes.

Real estate is in the same position tech stocks were roughly 5 years ago.

Ok, so houses don't have nose bleed cash burn rates and high debt to equity ratios, but you get the point.

In some parts of the US, real estate prices are climbing too fast.

The fact that the national savings rate is so abysmally low corroborates that too much money has been poured into one asset class.

Didn't your mom ever tell you to never put all your eggs in one basket?

With that said, this weeks stock play comes to us from our friends over at

Toll Brothers, a luxury home builder with a solid balance sheet, is heavily being shorted as traders and investors anticipate a real estate pullback.

The real stock you want to be shorting here is Dominion Homes.

Underperform Rating on DHOM shares.

As Charles Kirk notes, "Those of us who saw the last bubble deflate remember that it wasn't the Ciscos or the Intels of the world the fell the hardest, it was the weakest players in the sector like TheGlobe.coms or InfoSpaces."

A sound strategy that creates a win-win: if you're wrong on your timing and the bubble continues to inflate, the laggard of the leader industry ultimately falls anyways.

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