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It's been a couple of years now since U.S. housing first gave new meaning to the word "apocalypse." But just this week, with the release of some semi-positive data on the group, it looks like we'd be wise to begin to rank our favorite players for a recovery.
I say that knowing that we could still be in for a long stint of sliding home prices, increasing foreclosure rates, mortgage chaos, and steady losses by the big builders. But I also think there's a reasonably solid way to guard your capital, while positioning yourself for a recovery, should one be beginning. That way involves slowly building a position in America's luxury builder, Toll Brothers (NYSE: TOL ) .
You've probably noticed that in the past week data was released indicating that, while house prices are still sliding nationwide, in many places that slide has begun to moderate. At the same time, sales of new homes rose month-over-month in July, and while one data point doesn't create a trend, the longest journey begins with the first step, if you'll accept a pair of unrelated metaphors.
To my mind, Toll includes a couple of meaningful benefits. First, is its luxury builder status. I continue to believe that a recovery will begin at the top and filter down. That directional tendency was perhaps helped by the inclusion of an increase to $625,000 in the conforming limits of Fannie Mae (NYSE: FNM ) , Freddie Mac (NYSE: FRE ) loans under the new Housing and Economic Recovery Act of 2008.
The other plus for Toll involves the company's management, led by Bob Toll. Bob has been at the helm of his company since it founding, and he is to homebuilding what Schlumberger's (NYSE: SLB ) Andrew Gould is to oilfield services: a leader who knows his industry and is unafraid to speak his mind, often in colorful and memorable ways.
Toll's shares are up more than 20% this year, even amid the flow of negative housing news that 2008 has included. I judge that to be an indication of some downside protection there.
Finally, there are a couple of other builders you might begin watching as well: KB Home (NYSE: KBH ) , because it eschews speculative building and therefore doesn't accumulate big housing inventories, and Meritage (NYSE: MTH ) , given its strong position in the relatively unruffled Texas market. The key is to begin to line up your favorites and to keep in mind that not all builders are created equal.
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