Avatar Holdings, Inc. (AVTR)

Home builders have an advantage over many other businesses in that homebuilding consists of buying land, building materials, engineers and architects, and hiring labor. These are all very scalable and very flexible. Much more so, anyway, than say building a $120 million dollar factory or planting a vineyard, or developing brand loyalty. Granted, prospecting for new sites and buying land takes time. Securing financing, fluctuating materials pricing, market conditions, even the weather, however, are variables homebuilders deal with all the time, under the best of conditions. So when the market turned sour and the credit crisis took its toll, homebuilders had to do what they've always done -- shrink to conform to market conditions. There are probably six more important factors for home builders to have to contend with that I'm not mentioning. But all that having been said, whatever those conditions maybe, they have been factored into the current price of stock. Maybe more than they should be?

Assuming we're seeing some sort of recession going on right now, life goes on. People buy homes. People move, change jobs and people try to better their situations. Maybe less so and at a slower rate than during boom times, but people buy homes. This is has already been factored into the price of homebuilding stocks as well. Even when you are hearing daily about this bank loss of $3 billion or that bad loan of $2 billion, you still see Countrywide and Ditech commercials an TV for low interest loans. My bank and my credit card companies haven't stopped either. In fact, if anything, I'd say they've stepped up the pace of advertising credit.

The price of a stock is based on the buyer's ANTICIPATED earning ability of the stock. It is not a valuation of the company.

These homebuilding companies' stock prices will improve from this point in time and perhaps even recover rapidly if conditions stay the same or improve. I'm not saying that there is clear sailing ahead. There might still be some bumps in the road. The market is SO jittery right now that even small things seem to have large ripple effects. It is frightening to hear stories about how rumors could be used to topple companies. A continuous stream of bad news from the banking sector keeps streaming into my browser window daily. It's not finished yet, I'm afraid. The market responds in fits to each little tidbit of news, good or bad. When the market ignores good news, however, that's when it's time to pull up stakes and pack it in. That's not the case at the moment.

Thumbs up for homebuilders.