"The Housing Bottom"

We had some decent real estate numbers this week and I have heard from 50 commentators that the housing "bottom" is in and to go buy homebuilders. As always, I don't believe them, but for here is a look residential homebuilders and a rank of them based on balance sheet measures. A different play on this is the XHB. This etf is a "homebuilders" etf; however, has holdings on housing related plays, like Lowes, Home Depot, Bed Bath & Beyond, as well as direct homebuilders. Inventory write-offs and quarterly losses can damage cash balances even further, so it is important to anlayze inventory valuations, as well as key market real estate locations, that the firm builds in. Some markets can still drop more, so if you take a big stake, I would look at this information. In addition, I would look at short interest and run ups (note for recent short interest, a broker can give you exact numbers. I get some data from yahoo or your brokerage website, but its given to the website at the beginning of the month, most of the time)

Above is a ranker on the homebuilders. The ones highlighted in red are the only homebuilders with positive cash per share ratios. These are ranked by a balance sheet/fundamental measures that I use, so the best are at the top. I would also be a little "weiry" on the BZH calculations because I reviewed their numbers and it just didn't look right. So, I might but that at the very bottom; however, it has went from $0.30 to $1.20ish so not a bad run up. Balance sheets are KEY to this trade because like Commercial Real Estate REITS, there are a lot of "bad" and "good" names and homework is vital. Inventory values are not always certain. In addition, I would look out for firms that build high dollar homes and I would be very cautious. The reason for this is that JUMBO loans are very costly (7% interest) and are also difficult to obtain. Therefore, I would be skeptical of builders, specializing in building homes in the JUMBO range. I highlighted in blue the best speculative play out of the bunch. I know our commentator RT bought some HOV this week, so keep it on the radar as it might play out as the lottery ticket winner (lotto ticket is wall street talk for a cheap stock). Jim Cramer is pumping KB Homes (up 6% friday), as "best of breed" but its number 3 on my list. SKY is a microcap, so I would do more homework on it, but it has very nice balance sheet but EPS is the key watcher.

All in all, I would use this as a guide and research earnings prospects. The onces in red have positive cash per share ratios but if EPS is dreaded, that can change. I am long none now and will watch a few on my radar. Honestly, I like the XHB at $11, through calls or buying it out right, to reduce my risk and gain exposure to some of the housing retail.