Homebuilder Rebuilds in California

11/14/2003 12:00 am EST


Dennis Slothower

Chairman and CIO, Alpine Capital Management

"Construction and housing stocks are in very powerful uptrends," says Dennis Slothower, editor of Stealth Stocks. "Our latest stock of the month is California's largest home builder, which will see an additional demand due to the rebuilding needed in the wake of the devastating fires in the region." Here's his assessment.

"When I do my research find our 'Stock of the Month,' I try to find a company that is not all that well-known on Wall Street, not followed by many analysts, yet has a great business model and is in a fast moving sector. William Lyon Homes (WLS NYSE) certainly fits that bill. The company was founded in 1956 and William Lyon, is 80 years old and acts as chairman and CEO. After completing his Air Force career, General William Lyon joined his father and brother to build homes for returning military personnel and others who were moving to California. The firm is now the largest builder of homes in California.

"William Lyon Homes runs more like a private company than a public one. They still take great pride in the homes they build and insiders hold over 56% of the company's outstanding shares. When I see that much stock being held by the people running the company, it gives me great confidence that they give a darn about their shareholders as well, as they are all in the same boat. It also tells me that they will do everything it takes to run their company in the most efficient manner.

"Over the past five years earnings per share have increased over 44%. One catalyst that I think will move WLS higher over the short term, unfortunately, is the worst California forest fires in over a decade. The impact on the housing market will be huge. According to my numbers, this is a stock that should be selling close to the $120 range over the next three-to-five years. It is currently trading in the mid- to high-$60s, so WLS has a large upside potential. Place a trailing stop 25% below your entry price."

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