Housing Industry Stocks Still Under Pressure

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Though Wall Street ended solidly in the black for the month of September, builders continued to suffer as weakness in the sector pushed stocks lower, both in the Builders' and Product Manufacturers' indexes.

October 01, 2007

Though Wall Street ended solidly in the black for the month of September, builders continued to suffer as weakness in the sector pushed stocks lower, both in the Builders' and Product Manufacturers' indexes. Investors liked the half-point rate cut by the Federal Reserve Board more than midway through our session, and the move sent stocks on a sustained rally.

"A second Fed cut will go a long way in reassuring the stock market that the worst is over," says Janna Sampson, director of portfolio management at OakBrook Investments. "The focus going forward will be whether the Fed is going to lower rates to shore this up or decide the risk of inflation is too high."

Although September was strong for the major markets, the news kept getting worse on the home-building front. Housing starts and permits were at a 12-year low in August and fell short of forecasts. The Builders' Index shed 41.74 points, or 5.61 percent, to close at 702.19. Declining issues outweighed advancing issues by a 26–9 count. The Product Manufacturers' Index was up 47.22 points, or 4.52 percent, nearly all of that gain carried by GE. The index closed at 1,091.70. Declining issues outpaced advancing issues by a 5-1 margin.

The top dollar gainer on the builders' side was Weyerhaeuser, which won $42.4 million in an arbitration decision affiliated with its purchase of a pulp and paper mill in Canada. The arbitration involved the cost of particular environmental conditions at the mill. Officials at Bowater, the company in question, said they will not appeal the decision. Weyerhaeuser added 4.13 points, or 6.06 percent, and closed at 72.30.

Standard Pacific slipped 4.54 points, or 45.26 percent, after company officials said it would discontinue its quarterly dividend and would offer $100 million in convertible senior subordinated notes. Standard Pacific said it will use the proceeds from the cancellation of its dividend to pay down debt. Standard Pacific closed at 5.49 and was the top percentage loser this month.

On the product manufacturing front, GE's CEO said the industrial economy looks "pretty good," in stark contrast to the home building sector. GE CFO Keith Sherin, in a meeting with analysts via the Web, said orders have risen through the third quarter. Stern said that GE is holding to its previous profit forecast, which ranges between 54 cents and 56 cents per share for the third quarter. He said GE will exit the subprime lending market by the end of the year with the sale of WMC Mortgage, its subprime mortgage lending unit. GE added 2.53 points, or 6.51 percent, and was the top dollar and percentage gainer for the Product Manufacturers' Index. GE closed at 41.40.

Whirlpool shed 7.31 points, or 7.58 percent, and closed at 89.10 this month. Whirlpool was dragged down by Lowe's after the home improvement company cut its profit expectations for this year because of the weak housing market. Whirlpool fell along with other allied stocks in the sector. Whirlpool was the top dollar loser in the Product Manufacturers' Index this session.

PRODUCT MANUFACTURERS' BUILDERS'
Price 9/2007 Price 8/2007 Net Change Percent Change Price 9/2007 Price 8/2007 Net Change Percent Change
Index 1,091.70 1,044.48 47.22 4.52% 702.19 743.93 -41.74 -5.61%
Dow Jones Industrial Average 13,895.63 13,357.74 537.89 4.03% 13,895.63 13,357.74 537.89 4.03%
S&P 500 Index 1,526.75 1,473.99 52.76 3.58% 1,526.75 1,473.99 52.76 4.03%
NASDAQ Composite 2,701.5 2,596.36 105.14 4.05% 2,701.50 2,596.36 105.14 4.05%
GAINERS DECLINERS GAINERS DECLINERS
2 WHIRLPOOL 9 NVR
GE -$7.31 WEYERHAEUSER -$89.25
$2.53 AMERICAN WOODMARK $4.13 STANDARD PACIFIC
GE -17.83% TARRAGON -45.26%
6.51% 10 178.72% 26
Source: Trade Ternds, 509/327.1279


Author Information
Margot Crabtree is president of Trade Trends, a financial services company.
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