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LEN is in the hottest markets which I think is key to a successful 2018. If you look at KBH or TOL you will see that they are on the fringes of some of the hottest markets but, unless I am missing something, they are not in the heart of the very hottest real estate markets like LEN and other competitors. This bodes well for LEN. As long as LEN can continue to divine which markets will be the hottest and avoid getting trapped in downside markets it should be a great year. What makes a hot market? High demand mostly but low supply can be a contributing factor. Here in California, we are experiencing very tight market conditions. There are very few existing homes on the market and many buyers ready to pounce on anything that moves. Anyone can put their house up for sale for any price within reason and it will sell like a hot cake in December. If LEN cannot capitalize on these market conditions I will be astounded.
For those worried about interest rates, I disagree that higher rates will be a problem. LEN operates like a bank and makes money on higher interest rates as long as they don't rise too high too quickly. Lawrence Yun, prominent economist, recently stated on NBR that 6% would be a possible tipping point where drag would be introduced.
I'm noticing that KBH, much like TOL is not in the hottest markets, although they are on the fringes. What's up with that? Unless KBH wants to be outperformed by PHM, LEN, DHI and possibly even HOV, they need to check out the hottest markets and enter them asap and at the same time depart some of these goofy markets. I think consolidation is the name of the game and focusing resources on the hottest markets such as Inland Empire is crucial.
We have talked a few times recently about Hovnanian Enterprises Inc., which got favorable financing from Blackstone Group's GSO Capital Partners through some credit-default-swap market machinations. GSO had bought CDS protection that would pay off if Hovnanian defaulted. Hovnanian will refinance its debt with a series of new instruments, including a favorable new term loan from GSO but also some new 22-year bonds with a comically below-market interest rate of 5 percent, which should trade at something like 50 cents on the dollar. Those bonds -- along with more valuable bonds, adding up to an attractive total package -- will be issued in exchange for some of its old bonds, pushing out its debt maturities and relieving some of its financial pressure.
But it also plans to buy (through an affiliate) $26 million worth of the old bonds, keep them outstanding, and default on an interest payment just to those bonds. Hovnanian will default on a payment it owes to itself, but keep paying off all of its external bondholders. This shouldn't bother the bondholders, but it should trigger the credit-default swaps. And because some of the new bonds will be worth something like 50 cents on the dollar, those credit-default swaps (which pay out more the less Hovnanian's bonds are worth) should be worth a lot. GSO will make a nice profit on its CDS, and will use some of that profit to subsidize some cheap financing for Hovnanian.
I once wrote about it:
It's quite a trade! One thing that is elegant about it is that it doesn't require Hovnanian to "really" default: It has to miss an interest payment, but only an interest payment due to its own affiliate. (Outsiders who keep the 8 percent bonds after the exchange offer will still get paid.) No third-party creditor will be harmed by the default, so no bond or loan investor will have any cause to complain, or to refuse to finance Hovnanian in the future, or to sue Hovnanian's directors for defaulting in bad faith. The only people harmed by these machinations will be the people who wrote credit-default swaps -- and I suppose it is reasonable for Hovnanian not to care too much about what they think.
That was a bit hasty: You can get sued for anything. And so last week Solus Alternative Asset Management LP, a hedge fund that wrote credit-default swaps on Hovnanian, sued the company, its chief executive officer and chief financial officer, and GSO, for ... something? The problem is that Hovnanian really isn't doing anything to Solus. Solus wrote some CDS on Hovnanian, but Hovnanian wasn't a party to that CDS and has no obligations to Solus under it. So the lawsuit consists of a lot of hand-waving and shouting about fraud. "The Defendants, directly and indirectly, by the use, means, or instrumentalities of interstate commerce and/or of the mails, engaged in deceptive or manipulative acts to engineer a fraudulent, sham payment default by Hovnanian and the issuance of a Rigged Bond whose off-market terms will drive its price well below par and result in an inflated recovery on Hovnanian CDS contracts," says the complaint, to which Hovnanian might reasonably respond "yeah what of it?" Hovnanian isn't defaulting, fraudulently or otherwise, on a payment owed to Solus; it's not forcing Solus to buy any bonds, rigged or otherwise. Solus's objection is strangely aesthetic: Hovnanian's new bonds are so ridiculous that they just shouldn't be allowed to exist.
To put the absurdity of the Rigged Bond into perspective, there is not a single high-yield issuer rated by Moody’s or S&P with Hovnanian’s credit rating (or worse) that has outstanding unsecured debt maturing more than 10 years in the future, let alone the 22-year maturity proposed for the Rigged Bond. Any arms-length investor willing to lend money to a company for that extended length of time typically demands a higher interest rate to compensate them for committing capital for that long; yet, the annual interest rate on the Rigged Bond is half of the 10% interest rate on Hovnanian’s own secured bonds that would mature eighteen years before the Rigged Bond. Indeed, given these wildly off-market terms, credit analysts at global investment banks have speculated that the Rigged Bond will trade at no more than 50 cents on the dollar while the company’s legitimate unsecured bonds are currently trading around par.
Perhaps more seriously, there is a claim that Hovnanian's exchange offer documents are misleading, "disclosing obliquely that its agreement to default on interest owed on its notes 'may' trigger a credit event when, in fact, the true but concealed nature and purpose of the transaction is a commercial bribe intended to trigger a CDS credit event for the sole purpose of enriching GSO in exchange for the provision of below-market financing."
"The intended effect of Hovnanian’s complicity in GSO’s scheme," says Solus, "is to deliver hundreds of millions of dollars of illicit CDS payouts to GSO and other CDS protection buyers at the direct expense of innocent CDS protection sellers, like Solus." There is a lot of that sort of emotional appeal: Think of the poor innocent CDS protection sellers! "In selling CDS protection on Hovnanian debt," the complaint says, "Solus relied upon a normally functioning market in which payment defaults occur as a result of actual financial distress, and borrowers endeavor to abide by their contractual obligations." But again that is no concern of Hovnanian's. Hovnanian didn't invent the CDS market, or buy or sell any CDS itself. Hovnanian never asked Solus or anyone else to sell CDS on itself; Hovnanian would have been perfectly happy if anyone who had wanted to invest in its credit had just bought its bonds rather than entering into zero-sum third-party derivative side bets. But they entered into the side bets, and GSO found a way to turn those bets into money for Hovnanian (and GSO), and Hovnanian took it. It's hard to see why it wouldn't.
PHM seems to be better positioned compared to some competitors such as TOL. I like the market selection PHM has exhibited to this point. Being in the hot markets will be key to success in 2018. TOL is near hot markets but PHM seems to be right in the thick of it.
The only thing I am worried about is that TOL is not entering some of the best markets. Compared to DHI, LEN and PHM (all competitors), TOL could be getting left out. It is possible that TOL is quietly out acquiring property in hot markets in order to soon enter them and perhaps slip out of underperforming markets?
Downgrade Raymond James: Strong Buy to Outperform 12/7/2017
Downgrade KeyBanc: Overweight to Sector Weight 12/6/2017
I see a message like this on another message board, "Sell DHI because interest rates are going up and there is no space/land to build on." Many reports are claiming that home builders will slip in 2018 due to higher interest rates.
Nonsense! The higher mortgage rates go, within reason (below 6% per Lawrence Yun), the more money goes into the pocket of DHI. Yes, higher interest rates lower demand a bit but demand is very high right now, far outstripping supply which is constrained. DHI is in a great position, it should be a great 2018. Now, if only DHI can turn a profit and announce a share buyback. That will take a few good quarters first. Some builders could slip a bit because they are not in the same great markets as DHI. DHI is in some of the best markets in my opinion.
What I meant to say was that if oil and gas prices stay low, say under $60, WFT might have to raise money by selling convertible bonds, driving common share prices lower, possibly to $2 or even $1 if oil dips below 40 and interest rates increase. However, the dollar has been sliding and oil has the chance to move higher; this all could help WFT. For example, if oil prices go to $80-$90 per barrel, WFT would likely see a large increase in revenue and profits and share price could go to 5 or 10. RIG and DO seem to be in better positions, but they are suffering as well. Overall, the oil patch is in turmoil (on sale) at the moment. Your thoughts?
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Barclays analyst David Anderson downgraded shares of Weatherford from Overweight to Equal Weight and reduced the price target from $6 to $3.50...Mark McCollum, who took over the reins of Weatherford, is the "right man for the job,"...Feb 13,2018
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I think BZH is a little weaker than some of the other home builders but it's not bad.
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News...
Wedbush's Jay McCanless made the following rating and price target changes:
Beacon Roofing Supply upgraded from Neutral to Outperform with a price target boosted from $52 to $70.
Beazer Homes upgraded from Neutral to Outperform with an unchanged $22 price target.
Beazer Homes: Rising Demand
Beazer Homes' stock has fallen around 17 percent since the start of 2018 and is now trading at 0.7x the estimated book value of $18.77, which is a discount to the group average of 1.4x, McCanless said. The stock is undervalued in the analyst's view, especially when Beazer is likely to hit its 2018 revenue target of $2 billion and come in just below its adjusted EBITDA margin target of 10 percent.
Beazer Homes' move to redeem its $96.4 million outstanding notes at the end of the fiscal 2018 represents another growth catalyst, the analyst said. The continued balance sheet improvement is an "overlooked facet of the story" and is one of the main reasons why the company can boost its land spending and expand into new product segments like gatherings, McCanless said.
Barrons.com•February 16, 2018
Home builders are getting set to construct more units than they have at any time since the recession, based on building permits, but it comes at a curious moment: Mortgage rates are rising faster than they have in years—which means builders are unlikely to get the same prices they would have a year ago. Housing starts soared 9.7% to 1.33 million, well ahead of expectations for 1.23 million and last month's count of 1.19 million, according to the Commerce Department. Building permits, an indicator of future growth, soared 7.4% to 1.4 million.
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Home builders are set to boom in 2018. Demand is strong and supply is very weak, buyers have little choice but to buy new homes because there aren't many existing homes available. For example, in my city we have very few houses for sale and you can get whatever you want for your house if you put it up for sale, within reason of course.
PHM - Strong buy
Price target: $40
Global Credit Research - 05 Feb 2018
New York, February 05, 2018 -- Moody's Investors Service upgraded Hovnanian Enterprises, Inc. ("Hovnanian") Corporate Family Rating to Caa1 from Caa2 as the company has made strides in reducing its near-to-midterm refinancing risk and Moody's believes that Hovnanian generates sufficient unleveraged free cash flow to cover its interest burden in the next 12-18 months. The company's speculative-grade liquidity rating was upgraded to SGL-3 from SGL-4 to indicate the improvement in its liquidity profile.
In conjunction with this rating action, Moody's also downgraded the company's Probability of Default to Ca-PD/LD in order to indicate the distressed exchange that took place among the company and the holders of its 7% Senior Notes due 2019 and 8% Senior Notes due 2019. We anticipate to upgrade the Probability of Default Rating to Caa1 shortly.
Moody's also assigned Caa3 ratings to the K. Hovnanian Enterprises, Inc.'s (K.Hovnanian) new unsecured notes: 13.5% $90.5MM due 2026 and 5% $90.1MM due 2040. The notes, along with cash on hand, will be used to execute the distressed change.
The following rating actions were taken:
Downgrades:
..Issuer: Hovnanian Enterprises, Inc.
.... Probability of Default Rating, Downgraded to Ca-PD/LD from Caa1-PD
Upgrades:
..Issuer: Hovnanian Enterprises, Inc.
.... Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4
.... Corporate Family Rating, Upgraded to Caa1 from Caa2
..Issuer: K. Hovnanian Enterprises, Inc.
....Senior Secured Regular Bond/Debenture, Upgraded to B2 (LGD2) from B3 (LGD3)
Assignments:
..Issuer: K. Hovnanian Enterprises, Inc.
....Senior Unsecured Bank Credit Facility, Assigned Caa3 (LGD6)
....Senior Unsecured Regular Bond/Debenture, Assigned Caa3 (LGD6)
Affirmations:
..Issuer: Hovnanian Enterprises, Inc.
....Pref. Stock Preferred Stock, Affirmed Ca (LGD6)
..Issuer: K. Hovnanian Enterprises, Inc.
....Senior Secured Bank Credit Facility, Affirmed B2 (LGD2)
....Senior Secured Regular Bond/Debenture, Affirmed Caa2 (LGD4)
....Senior Unsecured Regular Bond/Debenture due 2019, Affirmed Caa3 (LGD6)
Outlook Actions:
..Issuer: Hovnanian Enterprises, Inc.
....Outlook, Remains Stable
..Issuer: K. Hovnanian Enterprises, Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
The upgrade of the Corporate Family Rating to Caa1 from Caa2 recognizes Hovnanian's significantly improved debt maturity profile with the nearest significant maturity coming up in 2021. Furthermore, Hovnanian is anticipated to generate sufficient unleveraged cash flow, as it can pair back land purchases if need be, in 2018 to cover its interest payments. Homebuilding EBIT interest coverage is anticipated to be between 1x-1.4x in 2018.
At the same time, the rating continues to be pressured by the reduction in the revenue base and debt to capitalization in excess of 100%. However, despite declining revenues and community count, the company has shown contracts per community increase. For the 4Q2017, they were up 10% YoY.
The Speculative-Grade Liquidity (SGL) Rating of SGL-3 reflects Hovnanian's adequate liquidity profile over the next 12 to 18 months.
The SGL Rating takes into consideration internal liquidity, external liquidity, covenant compliance, and alternate liquidity. Hovnanian's internal liquidity is supported by its $463 million of cash on hand as of October 31, 2017. For 2018, we anticipate the cash balance to be around $213 million. The company has a $125 million revolving credit facility and we anticipate Hovnanian to have about $52 million of borrowings outstanding under it. Hovnanian is not subject to any financial maintenance covenants. Alternate sources of liquidity are limited.
The stable outlook is predicated on the successful completion of this transaction.
The ratings could be upgraded if the company's debt to capitalization improves to below 80%, interest coverage improves to above 1.5x, and its liquidity shows improvement as well.
The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Established in 1959 and headquartered in Red Bank, New Jersey, Hovnanian Enterprises, Inc. ("Hovnanian") designs, constructs and markets single-family detached homes and attached condominium apartments and townhouses. Homebuilding revenues for the last twelve months ended Oct 31, 2017 were approximately $1.8 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Tiina Siilaberg
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
Brian Bandell
American City Business Journals•February 14, 2018
Lennar Corp. has reclaimed its spot as the nation’s largest homebuilder after completing the acquisition of CalAtlantic Group. Miami-based Lennar (LEN) and Virginia-based CalAtlantic (CAA) both received shareholder approval for the merger on Monday. Each share of CalAtantic may be exchanged for either 0.885 shares of Lennar or $48.26 in cash.
Sentiment: BUY
By Lucia Mutikani
WASHINGTON, Feb 16 (Reuters) - U.S. homebuilding rose to more than a one-year high in January, boosted by strong increases in the construction of both single- and multi-family housing units, and further gains are likely with building permits surging to their highest level since 2007.
Other data on Friday showed a jump in import prices last month amid solid increases in the costs of petroleum and a range of other goods, bolstering expectations that inflation will accelerate this year. The bullish housing data suggested the economy remained on firmer footing at the start of the year despite weak retail sales and industrial production in January.
"The economy is back on a winning path for stronger growth even if it is not firing on all cylinders with all sectors participating," said Chris Rupkey, chief economist at MUFG in New York.
Housing starts jumped 9.7 percent to a seasonally adjusted annual rate of 1.326 million units, the Commerce Department said. That was the highest level since October 2016 and followed an upwardly revised sales pace of 1.209 million units.
Economists polled by Reuters had forecast housing starts rising to a pace of 1.234 million units last month after a previously reported rate of 1.192 million units.
Building permits surged 7.4 percent to a rate of 1.396 million units in January, the highest level since June 2007.
A tightening labor market is boosting demand for housing, but rising mortgage rates and house prices could slow the momentum. Despite the unemployment rate being at a 17-year low of 4.1 percent, annual wage growth has not exceeded 3 percent.
STRONG BUY!
KB Home (KBH) today announced the grand opening of Freedom Ridge, its latest community of single-family new homes in Seffner. Freedom Ridge’s convenient location near several major thoroughfares, including Interstates 4 and 75 and US Highways 92 and 301, allows for easy commuting throughout the greater Tampa area.
http://www.businesswire.com/news/home/20180216005116/en/
More good news for KBH. It's going to be a great 2018 for KBH, I guarantee!
Price target: $60
Sentiment: Buy
"Over the last year, the SPDR S&P Homebuilders ETF XHB, -0.09% has gained nearly 22%, outpacing the S&P 500’s 17.7% advance."
https://www.marketwatch.com/story/home-builder-sentiment-stays-very-strong-in-february-nahb-says-2018-02-15
"The National Association of Home Builders/Wells Fargo housing market index stayed at 72 in February. That’s a very strong reading, and just slightly below December’s cycle-high reading of 74, as any reading over 50 indicates “good” performance."
Analyst upgrade:
Maintains
Loop Capital: Buy to Buy
2/6/2018
Maintains
Credit Suisse: Outperform to Outperform
2/6/2018
Maintains
Bank of America: Neutral to Neutral
2/5/2018
Upgrade
Bank of America: Underperform to Neutral
1/16/2018
This report is typical for markets all around the country:
"The volume of housing sales is holding steady in the Cincinnati region as average and median home sales prices continue to rise and set new records.
The 2017 year-end average home price climbed to $202,169 compared to $190,908 in 2016, a 5.9 percent increase, and the December average sale price climbed to $198,356 compared to $190,625 a year earlier, a 4.06 percent increase, according to the Cincinnati Area Board of Realtors.
At the same time, the inventory of homes for sale, as of Dec. 31, continued its year-over-year declining trend to 4,360 from 5,049 a year ago, down 13.65 percent."
http://www.journal-news.com/news/this-area-housing-marker-hasn-been-this-strong-awhile-here-the-data-that-prove/Xb2fDYWOcQSH6S2CiEDW1H/
Feb 8, 2018
Journal-News
Lower inventories, high demand and higher prices is going on in several regions. Hopefully, LEN can capitalize on the positive market and have a great 2018.
Record profits, best in 11 years!
https://finance.yahoo.com/video/nomuras-profit-jumps-highest-over-005649674.html
Feb.01, 2018 -- Nomura’s profit jumped to the highest in more than 11 years last quarter, led by a recovery in its retail brokerage business as Japanese returned to the stock market. Bloomberg's Gareth Allan reports on "Bloomberg Daybreak: Asia."
Mr. Allan reports that low interest rates in Nihon have been responsible for the stock's relative weakness up until now.
I saw a nice piece on NBR...here it is
"The groundhog may not agree, but spring has sprung early this year, at least in the housing market. Rising interest rates and record-low supply have lured potential buyers out early — in just three days nearly 100 potential buyers toured a Denver home priced at $500,000.
"There is simply just too much demand right now," said Martin Mata, the Redfin agent showing the three-bedroom, two-bathroom home. "There is just not a lot of affordable housing here in Denver, and we have a really good economy so a lot of people are still moving here."
There were close to 26 percent fewer homes for sale in Denver in January compared with a year ago, according to Zillow. Nationally, supply is 10 percent lower than a year ago, with just three months' worth of available inventory. A six-month supply is considered to be a market balanced between buyers and sellers.
The record low supply is driving competition higher and bringing homebuyers out to the market very early...."
https://www.cnbc.com/2018/02/05/why-nearly-100-people-toured-one-denver-home-in-three-days.html
“Given the rising consumer demand for new homes in Sacramento and the Central Valley, we are pleased to be opening a new community in Stockton,” said Joe Killinger, president of KB Home’s Central California division. “This new community is a prominent addition to the diverse mix of locations, home styles, and design choices KB Home offers, and highlights our growing business in the region.”
KB Home currently has several new home communities open for sale in the Central Valley, including locations in Galt, Manteca, Rocklin, Roseville, Sacramento and Stockton. At Montevello, KB Home plans to construct a total of 122 single-story residences, available in five home designs that range in size from 1,925 to 3,061 square feet and can accommodate up to six bedrooms, four baths, and a two-car-garage. Pricing starts from the $380,000s."
Lots of great news coming from KB Home
https://www.businesswire.com/news/home/20180118005202/en/KB-Home-Opens-Montevello-North-Stockton
Source: Business Wire; Jan 18, 2018
Quarterly revenue up...
"...Weatherford is on the verge of selling its international land rig business, which is largely based in the Middle East, in the coming weeks or months.
Weatherford posted financial losses in both the Western and Eastern hemispheres, but much of its quarterly loss came from $1.68 billion in asset write downs. That includes nearly $1 billion from the planned sale of its land rig business, $230 million from a big drop in business in economically suffering Venezuela, and most of the rest came from older equipment that was scrapped.
It's nearly $1.5 billion in quarterly revenues were up 6 percent over the year prior, but its $5.7 billion in annual revenues fell 1 percent from 2016..."
https://www.chron.com/business/energy/article/Investors-spooked-after-struggling-Weatherford-s-12552406.php
Selection from:
Houston Chronicle
Jordan Blum, Author
Feb 5, 2018
KBH is looking good here. Much like TOL, KBH is poised to have a great 2018 based on market reports of housing inventories being very low, demand above average, and favorable interest rates. There is a dearth of listings and foot traffic is very heavy, offers are flying in. Open houses are hopping. If all of this is true, KBH can only benefit as long as management can keep this bird on course. Besides KBH, another stock making waves is IFXY. For KBH holders who have not yet picked up shares of IFXY, what are you waiting for? This is a great time to buy IFXY shares and KBH is also positioned very well in my opinion!
TOL fundamentals are in place. It should be a great year for TOL. Reports are housing shortages in the West, including jumbos such as TOL specializes in. Not many houses available but demand is above average so TOL revenues should go up a lot in 2018. As long as TOL management executes on this opportunity share price should hold steady and improve along with increased dividends.
Besides TOL, many other builders, financial companies and others are poised to have a great year. TOL and IFXY are two great stocks. If you have not picked up shares of IFXY shares yet but you already own TOL shares, now is a good time to buy IFXY. For those IFXY shareholders not yet owning TOL shares, you cannot find a better stock than TOL if you want a nice "blue chip".
In order for stocks like WFT and CHK to improve, oil and gas prices would need to go up quite a bit. One the other hand, IFXY is in a good position at the moment. I'm glad I bought IFXY shares and not WFT or CHK shares.
I agree, my price target range on this is .035 - .05. When the stock hits a nickel, I might sell some shares to recover my initial investment but this could sail past a nickel in time. Your thoughts?
I was thinking about buying WFT but then I did some checking into current affairs and it's not looking good. It seems to me that WFT has further to fall considering debt and recent losses. $2.87 now but I'm thinking it's going to $1.