Lennar Corp Class A (LEN)

[Santa Barbara Broker]

I recently invested in a trading position in LEN myself and added another 1000 shares this morning (when it dropped on the KB Homes earnings disappointment).

I have been investing in real estate, building homes and selling residential and commercial property for three decades. I have learned to time the home recovery curve coming out of a normal recesssion fairly well. I am now fairly well convinced for the first time this year that there may not be the serious double dip I was looking for since I learned Congress wouldn't be renewing the US $8K/6K homebuyer credits. I was fairly shocked yesterday when LEN reported earnings .21 cents over mean estimates. They have a habit of beating analyst estimates severely about the head and shoulders in both directions, but not usually in this type of economic situation. The CEO also reiterated that 2010 would be net profitable.

There are a couple things at play here which could provoke a relatively nice 30-90 day run-up in the stock back near $21. 1) Yesterday was a down market and today KB Homes disappointed. No one caught or seemed to give any weight to the good news from LEN. 2) The US BP Gulf Disaster should be coming to a close here in another 35-45 days. It is remarkable the number of really astute traders I speak with who believe that thing is having a real powerful psychological effect on the US recovery and, consequently the markets. They are actually keeping some powder dry waiting for the inside smart money to get the word the thing can be successfully capped. Look for a small run-up after that news is confirmed. 3) Almost all the other top 10 big builders are predicting break-even or a profitable 2010 as well and will be reporting what may be some good upside in expected earnings (against the huge May disappointment and decline in previous month over housing starts) over the next 45 days. 4) I can personally see a broadly defined turn around coming in the US housing market as early as September/October and re-firing after the holiday season ends in mid January. This one, unlike the false start prompted by the buyer's credit, will be felt and recognized by Joe Six Pack. 5) LEN spiked to $21 earlier this year on almost nothing. What will happen when there is genuine good news? Anyone's guess...but I know that your average self-directed investor taking a look at that $21 PPS earlier this year is not going to be nearly as scared to plop down some 401K cash on a $15-16 stock as they might normally be. 6) LEN whacked the dividend in the summer of 2008 from 16 cents a quarter to 4 cents after the housing market had already completely collapsed. They could easily announce they are considering reinstating it partially...two years after the fact. Which would be good for a bump of a half buck or more. I am not a big fan of Jim Cramer but his constant advice to watch for a dividend increase as being one of the best long term indicators of a solid buy is valid. 7) Last and not least...this was a $65 stock at it's high not that far back when the wild times in RE were rolling for everyone. It's not like they couldn't achieve that again some day coming out of the locker room a lot leaner and meaner after their smackdown.

I am a baby boomer and even I have never seen a crash and burn in the economy or the housing market like the current disaster at any time in my life let alone my RE career. So you must take any recommendation to buy LEN as a short term trading vehicle with a huge grain of salt in this economy. I bought and replaced my long term retirement portfolio LEN that I had dumped in early 2007 near the bottom in 2009 between $5 and $8. That seemed to me at the time to be a no-brainer. No guarantees short term and LEN will never be a rocket, but I think it could be a nice +$4-6 a share 60-90 day trade for a $10K +/- net on every 2K share block. Even if profit taking had to be delayed into September, it would be a worthwhile trade. CAVEAT: I put a 10% stop loss behind ALL short term trades and I never interfere with it except to step it up proportionately behind a steady climb in price. I learned a long time ago that while 10% hurts, 50% is a genuine PITA and it is always a good day when that adjusted stop moves over your entry price . But if you see this thing diving toward the $12s...all bets are off and I am outta here.

I welcome any potential LEN newcomers to the board and look forward to their advice, responsible, well thought out commentary (positive or negative) and research into the industry and the company. All IMHO.

SBB