Did Goldman spook homebuilding investors?

The company's upgrade of the sector coincided with the year's steepest market drop.

By Wall St. Cheat Sheet Apr 12, 2012 12:11PM

In March, Goldman Sachs (GS) issued a report to clients calling stocks an once-in-a-lifetime opportunity. "The prospects for future returns in equities relative to bonds are as good as they have been in a generation," wrote Peter Oppenheimer, the firm's chief global equities strategist. Afterward, the Dow Jones Industrial Average and S&P 500 declined significantly, causing investors to be more cautious than ever of Goldman's most recent recommendation on homebuilders.


After the company's first-quarter housing survey, Goldman recommended clients buy high-end homebuilders Toll Brothers (TOL) and PulteGroup, Inc. (PHM). The survey showed that 63 percent of consumers expect home prices to be stable or positive, compared with 58 percent six months earlier. Further, 83 percent of respondents with an income of $120,000 or more expect home prices to be stable or positive, compared with 75 percent six months earlier.


Homebuilders have outperformed the general market year to date, but Goldman's upgrade came on the steepest one-day decline in stocks this year. Instead of receiving a boost on the upgrade, shares of Toll Brothers and PulteGroup fell 4.7 percent and 6.5 percent, respectively. Lennar Corp. (LEN), the top performer in homebuilders for the year, dropped more than 7 percent. Instead of rushing to buy homebuilder stocks, investors appear to be taking Goldman's latest call as a reason to book profits. After strong gains in the first quarter and growing uncertainties in the macro picture, who can blame them?


Aside from Goldman's past recommendations, investors are struggling to place confidence in housing stocks as unemployment remains high. The latest unemployment report showed that only 120,000 jobs were added in March, well below estimates north of 200,000.


BMO Capital Markets explained, "It is tough to argue that an increase in U.S. employment is negative but the details make this report disappointing. Also, it doesn't help that there were such high expectations ahead of the release. And, the U.S. economy has still lost 5.3 million jobs since the economy peaked back in December 2007. So there's a long way to go before we're 'normal.' But progress is slowly being made," according to Reuters.


Eric McWhinnie is an editor at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.


Related

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
282
282 rated 2
455
455 rated 3
624
624 rated 4
642
642 rated 5
665
665 rated 6
610
610 rated 7
460
460 rated 8
287
287 rated 9
167
167 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
TWXTIME WARNER Inc10
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.