Monday December 10, 2007
“Atlhough still early, it is getting very tempting to start accumulating homebuilders,” says Glenn Rogers in Gordon Pape’s Internet Wealth Builder. Here's a look at a sector ETF.
“There is an old principle of buying good companies when they’re down. This makes homebuilders tempting here. But other old truisms, like the one about catching falling knives, also spring to mind.
“I doubt it’s possible to pick a bottom but we will have a tremendous opportunity to acquire shares in all areas of the housing sector early next year, as long as you have patience and are prepared to hold them for a while.
“The SPDR S&P Homebuilders ETF (ASE: XHB) is an exchange-traded fund represents a basket of most of the major players in the U.S. housing sector and is probably the best way to play a rebound. The management expense ratio is a low 0.35%.
“It is designed to track the performance of the S&P Homebuilders Select Industry Index, less expenses. The fund holds 22 stocks covering a variety of housing-related sectors including home builders (Toll Brothers), suppliers (Sherwin-Williams), and big box do-it-yourself stores (Home Depot, Lowes).
“This ETF has been badly battered by the slump in the U.S. housing market and lost almost 35% of its value in the 12 months to Oct. 31. It recently touched a 52-week low of $16.84, down from over $40 last February -- a tremendous fall.
“At the current price level, this ETF looks like a bargain. The price to book ratio at the end of October was only 0.56 and the yield on the shares was 1.86%. However, we could see some further softening which would make these units an even better buy so we’ll bide our time for now. “Only the very brave should consider buying now.”
