Despite Volatility, Homebuilders Offer High Return, Diversification

2010-07-29 14:10:27

For investors looking to diversify their portfolios, residential real estate stocks, such as homebuilders, are one solution.

"Diversification allows you to control risk," said John F. Osbon, the founder and CIO of Osbon Capital Management. "Real estate's valuable function is that it's a hybrid. It has both bond and equity characteristics, and does not move in tandem with other markets necessarily."

Osbon provides three key metrics to consider when investing in residential real estate.

• Replacement cost versus Price.
• Cost of capital for homebuilders versus price.
• Rent-to-Own Ratio

"If you are looking for a high-return potential investment, I would have to say homebuilders are right near the top," Osbon said. "If I were a speculator, I would say they are a great buy right now for a couple of very strong demographic reasons."

Restaurants With Size & Scale Focus on International Growth

2010-07-28 12:01:02

While restaurant stocks have shown signs of weakness, the fundamentals are more stable than the media or markets would have investors believe, says Credit Suisse Analyst Keith Siegner. He points to potential growth stories, despite the volatility in the U.S. consumer outlook.

"We believe investors should be focusing on large consumer multinationals with strong brands, high returns and free cash flows, international growth opportunities and the wherewithal to invest in comps in the U.S.," said Siegner, adding that having the size and scale to pursue market share is imperative in the current economic environment.

Yum! Brands (YUM) and Starbucks (SBUX) are among Siegner's favorite names -- Yum! for its long-term growth potential and ability to tap into China's emerging consumer class, and Starbucks for its investment in comps and international margin improvements.

Siegner places emphasis on international growth stories, seen in companies like McDonald's (MCD) and Yum!.

"For Yum!, the YRI business, getting to be potentially a $1.25 billion business by 2015 from under $500 million now, is a huge opportunity," Siegner said. "McDonald's is very clearly targeting [Burger King (BKC)] as a share donor in Germany, Burger King's largest European market."

Expired Homebuyer Tax Credit Opens Door to Value Investors

2010-07-27 13:37:21

Although the expiration of the federal first-time and move-up homebuyer tax credit has already led to weaker-than-expected buyer traffic during May and June, beleaguered homebuilders may experience some relief as the year progresses and several catalysts likely lead to price-to-book multiple expansion.

"We find the builder space to be attractive on valuation and long-term fundamentals, and suspect an appropriate entry point for equities could occur over the next six months," said Michael Kim, a senior vice president at CRT Capital Group LLC. Kim points to the sizable tax refunds made available to homebuilders through the Worker, Homeownership and Business Assistance Act of 2009, in addition to these companies' high levels of cash and shortened construction timelines as several positive dynamics within the homebuilder universe.

"Our thesis has been that we will dance along the bottom for a little while until we get that boost to the broader economy, especially considering housing is estimated to represent almost 30% of GDP. Household formation and favorable demographic trends on a regional level should support a baseline level of demand," Kim said. "Once you start to see job creation and greater consumer confidence, potential buyers will start looking at the move-up category, which someone like Standard Pacific (SPF) is more focused on."

And while value investors may be sitting on the sidelines, waiting for the appropriate time to jump into the homebuilders market, Kim says it's only a matter of time until we start to see more normalized housing starts.

"We suspect builder equities are going to be governed by market technicals rather than fundamentals, which has been the case more recently," he said. "And we believe investors will gain more conviction for the public builders some time over the next six months, if the macro data provides more visibility on a broader economic recovery."

This Week's Top 5 Senior Management Quotes

2010-07-26 11:25:29

From China's growing urbanization to the U.S. residential real estate market, here's a look at what's on the minds of senior managers featured in The Wall Street Transcript's newest issue, hot off the presses today and available at www.twst.com.

"When you look at our capital investments, we're spending about $1 billion this year -- almost half of that will be invested in China...We think this is the best opportunity for any global restaurant company for the 21st century." -- Tim Jerzyk, SVP Investor Relations, YUM! Brands

"So if you are looking for a high-return potential investment, I would have to say homebuilders are right near the top. Who needs venture capital when you have the homebuilders?" -- John F. Osbon, Founder & CIO, Osbon Capital Management

"In China they enforce the building codes and regulations more strictly than before. So the accountability is higher, as is the willingness to go to the top-quality provider of premium concrete and pay the market price for the assurance of top-quality concrete products and services." -- Jeremy Goodwin, President & CFO, China Advanced Materials Construction Group, Inc.

"[T]he restaurant industry has a lot of growth potential. There are still a lot of great chains out there that have a lot of room to grow. We also think people in general are going to be eating out more 10 years from now than they are today." -- Jonathan Dash, Founder & President, Dash Acquisitions, LLC

IT Staffing Shows Strong Demand in Temporary Employment Numbers

2010-07-22 12:23:38

Riding 10 consecutive months of improving numbers -- and five months of year-over-year improvements -- temporary job placement continues to outpace permanent employment growth, with professional IT staffing leading the way in temporary worker demand.

"Overwhelmingly, when I speak to professional-oriented staffing companies, the one vertical that they describe as the strongest, as experiencing the most recovery over the last four or five months, is the technology sector. The commentary we received is there is a shortage of highly qualified IT-related people out there that can service a lot of the projects that need to be done," said Northcoast Research Holdings Analyst John Healy, who's observed growing demand for IT professionals as companies begin to look into the technology updates they put off during the brunt of the recession.

"There is a little pent-up demand for IT spending, and I think companies are beginning to spend and they need people to come in and help manage and implement projects for them. And as business activity picks up for them, there is also a little bit more need for help desk operators, people to build security walls and firewalls for their business. So the IT demand that we're seeing is very strong on the temp side," he said.

Temporary staffing company Kforce (KFRC) is feeling the benefits of this pent-up demand, as are its competitors Manpower (MAN) and Adecco (ADEN), both of which recently purchased IT franchises.

"I think the IT business is growing faster than any end market and professional staffing, including finance and accounting, including legal, engineering, health care services," Healy added. "And large global staffing companies are anticipating more pickup in demand for tech staffing, and they want to kind of bolster their portfolios."