Monday, September 12, 2005

Bubbletalk ‘A Bunch of Hogwash’

Reporter Jonathan Burton of Investors Business Daily has some strong quotes in a story about Tony Weber, who Burton describes as "the plain-speaking president and chief investment officer" of Louisville, Ky.-based Veredus Asset Management. Weber's also the co-manager of the ABN AMRO/Veredus Select Growth Fund (AVSGX). Here's an excerpt from the Investors Business Daily story:
The gloom frustrates Weber, who points out that publicly traded home-building companies are a "prime example" of businesses with expanding profit margins and dominant market share, operating in a low-interest-rate environment.

"We totally dispute the premise that there's a housing bubble in this country," Weber said. "It's a bunch of hogwash. Nationally, there's not a housing bubble."

Weber backs up his bluntness with a 3.4% fund position in Pulte Homes (PHM), one of the nation's largest builders of houses for first-time buyers and retirees, especially in the southwestern and southeastern U.S.

"The story is real simple," Weber said of Pulte, which the fund started buying in April 2004 at $28.40 a share. "Great barriers to entry, no foreign competition, built-in pricing power and great market share. Gross margins can trend in the high-20% range, and there's a stable rate environment."

So far, Select Growth has been on the right side of the fence.

"Bubbles do not succumb to their own weight," Weber said. "There has to be a catalyst. With home builders, it's a spike in interest rates and nationwide job loss. Every single year, expectations were 50% too low compared to what the companies actually earned; analysts just don't believe it."

When Weber and his cohorts are convinced of an industry's prospects, they don't go halfway. Pulte is among several home builders reflecting almost 15% of the Select Growth portfolio, including D.R. Horton Inc. (DHI), Lennar Corp. (LEN), Centex Corp. (CTX) and Toll Brothers Inc. (TOL)

"The Street is always wrong," Weber said. "They're never going to tell you how well a company is going to do, or how poorly it's going to do. They're not paid to take that risk."

— The Boy in the Big Housing Bubble