Macro Tsimmis

intelligently hedged investment

SELL SHORT Beazer Homes (BZH)—again!

Posted by intelledgement on Mon, 24 Mar 08

Not long after we covered our Beazer Homes and Wachovia shorts back in January in the wake of the Fed’s surprize 75-basis point rate cut, we were sorely tempted to rush back in almost immediately (both stocks went up sharply the next day)…but we exercised discipline and instead contented ourselves with entering good-till-canceled (GTC) orders for each at around the prices we originally got when we sold them short last year ($10.99 for BZH and $39.99 for WB). Our GTC for Wachovia hit paydirt almost immediately, but the BZH order has been sitting there for weeks…until today, when it, too finally got executed.

We don’t really have too much to add to our prior series of posts as to why Beazer stock is outrageously overvalued here, even after having declined 68% in the last year. Suffice it to say that in addition to the terrible woes besetting the housing industry in general—real estate price declines, mortgage defaults, bloated inventory, rising construction costs, more difficult credit environment, weakening consumer, etcetera, etcetera—Beazer have their own special collection of crosses to bear, including:

  • Possible Federal criminal charges stemming from their lending practices
  • Possible SEC fines or criminal charges stemming from questionable transactions
  • Frozen financials pending the outcome of these and internal investigations
  • Payments to bondholders to allow waivers to avoid default because of the frozen financials
  • Dividend suspended
  • Workforce reductions
  • Series of writeoffs relating both to reductions to workforce and to value of land they plan to build on

While we take no delight in profiting when a company fails, Beazer was extremely aggressive in selling property to folks who really could not afford it in North Carolina, so there is more than the usual level of interest in their travails.

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