Don’t hate me because I’m beautiful
Today's Financial News - Posted May 5, 2009
The housing market is considered the antagonist to this global financial mess. But inside all the hate is a well-balanced company that has had no problem beating the market.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Here is an interesting question for you. Over the last year, the worst in post-war history for investors, what would you rather own, Toll Brothers (NYSE:TOL) or a sample of the entire market like the S&P 500?
Off the top of their heads, most investors would likely want to own the market. After all, how in the world would a homebuilder be able to “beat the market” during a horrific crash in housing prices?
Here’s the surprising answer…
If you went with the S&P, you would have lost double what you would be down in Toll Brothers. Yes, the nation’s most prominent homebuilder, a company that helped us get into this financial fiasco, beat the pants off the market over the last year.
Toll’s shares are down 16%. The S&P is down 35%. It is even beating the index over a five-year range:
The gap between the two is only going to get bigger as the economy and the real estate sector recover. Toll’s future looks significantly brighter than most publicly traded companies.
Don’t hate me because I’m beautiful
One of the most interesting facets of the current economic downturn is the horrific impact it has had on the nation’s builders. In this world, it is true only the strong survive. The notion is especially poignant in the housing industry.
Toll Brother’s recently issued debt with a coupon rate of just 8.9%. That figure is less than many folks are paying for a used car loan and is indicative of an extremely strong balance sheet.
The company will be able to use this sort of leverage to overpower its competitors. In the high-end construction business, few builders are able to get construction loans. Even fewer can do it as cheaply as Toll.
A valuable portfolio of high-quality land assets is also not hurting the company’s long-term chances. While competitors are forced to turn to the faster-moving low-end market, Toll is sitting on top-notch properties that are bound to pay off in as little as a few years.
Toll is not the kind of investment short-term speculators want to mess with. This company is a long-term winner that will become even more dominant in an industry that is slowly but surely rebuilding.
Granted, Toll will never be the fast-growth wealth generator it was just a few years ago, but that industry is gone. In its place is a more secure, dare I say more conservative, industry where fundamentals matter and a strong market stance will propel a company towards healthy long-term revenue streams.
It goes against much of what mainstream investors believe these days, but the housing market is not the death trap so many folks believe it is.
Next Article: Take the gains on small cap winner Hercules Technology Growth Capital Inc.
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