“We may be seeing a floor”

Toll Brothers CEO Predicts Bottom

By Bryan Bottarelli
Tuesday, December 05, 2006 10:30 AM EST
Tue, 5 Dec 2006 15:30:00 GMT

Dear Bottarelli Research Member,

I’d like to get re-established in longer-dated calls that profit off a rebound in the U.S. Housing markets. If you recall, we successfully played calls options on luxury homebuilder Toll Brothers (TOL — NYSE) in late November, picking up a quick and easy 29.82%. Now I feel it’s time to play the same game again, only this time I’d like to play Beazer Homes (BZH – NYSE).

BZH

This morning, the entire housing sector is getting a lift thanks to Toll Brothers — who forecasted their 2007 annual profits would be substantially lower than past years. But in the same breath, Toll Brothers CEO said that “we may be seeing a floor,” which shot life into the entire sector. What’s happening is that all the bad news has already been priced into the homebuilder stocks, and any up-tick in the numbers or sign of the sector hitting a bottom is all it takes to push this group of names higher.

In fact, no matter what news comes out of the homebuilder industry, this sector is set to rally. You see, if the homebuilder stocks continue to report bad numbers, the perception is that we’re at a bottom and it’s a good buying opportunity. If the numbers are good, then the perception is that the sector has turned the corner and things are looking up. It’s a win-win situation for the homebuilding sector! Plus, with an average Price to Earnings ratio of 7.26, the major homebuilding stocks on the market look very attractive. Let’s play the continuing rise using February call options on Beazer Homes. Here’s the play:

PLAY: Buy the BZH February 50 Calls (BZH BJ) at or under $2.20, good for the day. Place a protective stop loss at $1.40.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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