Monday, October 1, 2007

Lennar Stock Last Cycle

One problem with Wall Street is a lack of institutional memory. It seems that no one even remembers the last big downturn in housing that occurred in the late 1980's and early 1990's. I am posting a series of charts of different Homebuilders from that era. The first up is Lennar.

Two things are clear from this chart. First, this is not the first time that Homebuilders have gone down 75%, and second if you time this right on the upside, these stocks will be the buy of a lifetime.

It's hard to see in the chart but the stock looks like it bottomed out in October 1990 at around $0.55. This is down from the peak of about $2.05 in early 1987. Also, you will notice in the chart that there was a false rally after the crash of 1987. If you bought Lennar after the crash in October 1987 at $0.78 you saw your investment almost double in two years, before the stock fell to its true trough in October 1990. It would be interesting to see when the book value of Lennar stabilized in this downturn. Unfortunately, the SEC web site only goes back on line to 1994.


troy peterson said...

Agree with your thoughts and think there is more pain before a bottom. I do think I have your $.55 adjusted share price beat.... go look up MDC, which is now one of the more conservatively-run balance sheets in the industry.

Its split-adjusted low appears to be somewhere beneath $.10 a share! I'm guessing their strong balance sheet will preclude them from being as good of a buy this time around, but its worth looking back just to see how low the builders can actually limbo (without going bankrupt!) Troy P

Eric J. Fox said...

My plan was to go through all of them, I will check MDC next. I also think there is another leg down.

Jay Walker said...

The interesting thing is that most people don't really understand the *market* leverage home builder/developers have both on the upside and downside.

In an article I wrote for the Appraisal Institute of Canada, I talked about one large development parcel selling for 1/4 of it's peak value - and that was during a period of declining interest rates.

Similarly, development parcels experience the same upside swing, too, and of course this affects both balance sheets and the income side.

See more on this at:

(My article - PDF file).

My sense of this is that things aren't nearly done yet - despite the so-called forward looking mentality of the stock market.

Jay Walker
The Confused Capitalist

Eric J. Fox said...


I just finished reading your article on appraisals and it was an eye opener for me. I don't think that most investors realize how bad book value will be hit in this downturn.