How to find gems in a busted industry?

**grapes** Tue Aug 15, 2006 8:49 pm

How to find gems in a busted industry?
Blast and other gurus,

Currently it looked like the home builder (especially the resident home builder) stock will be in an inevitable bust period in its cycle. Blast should be an expert in this sector as demonstrate by previous picks. Do you think it is time to look values when it is busted right now? Or wait a while till the dust rests or even this sector show signs of recovery?

**pass** Wed Aug 16, 2006 2:20 am

I am not a guru, but your post reminded me how Peter Lynch invested in auto makers' stocks and made a big profit. He entered the market when the auto sales kept low for years and used some industry index to determin the timing. The index was telling how many cars should be needed by the cosumers comparing how many were sold.

I guess it is now too early to look for values in home buliders as now the supply or inventory is too high. Any value could be easily wiped out depending on future house market. Also, the inventory's pricing will be directly impacted by the house market, which makes it very difficult to calculate the true values of home builders.

**blast_investor** Wed Aug 16, 2006 11:35 pm

I just read that Bill Miller, the famous mutual fund manager had a theory of bull case for home builders because he saw in UK, housing slowed down but home builders stock went up. But he was burned badly on this sector, US is not UK.

No, I completely disagree with Bill Miller. Mr. Miller is bullish on tech stocks, home builders, and bearish on energy stocks. I am opposite, I would avoid tech stocks, avoid home builders, and focus on energy stocks.

I believe right now it is too risky to bet on this sector. In the past, home builder business was pretty cyclical and it would largely depend on interest rate for its business volume.

I would pass on this sector unless there is a compelling pick. "Compelling", I mean trading below asset level.

**blast_investor** Wed Aug 16, 2006 11:42 pm

By the way, I don't believe home builder business is "busted" business sector.

A "busted" sector would have lots of bankruptcy news. Certainly, I have not heard any bankruptcy news yet in this sector.