Recap of Sat., Sept. 27:Lennar and Ryland Group

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David Asman: Victoria, tell us about Tiffany (TIF).

Victoria Murphy, senior reporter: I think now is the time to look at Tiffany (search). Their jewelry is expensive, but the stock isn’t right now. It’s relatively cheap right now at 22 times forward earnings. And as the US economy picks up, as well as Japan’s, where Tiffany gets nearly a third of their sales, people are going to buy more luxury items, and as many of us have learned the hard way, some of the best things in life aren’t free, they come in a little blue box with a white ribbon around it. So, I like Tiffany right now.

Pete Newcomb, senior editor: I actually like it, and here’s why: You know, Forbes just did a cover story recently on a billionaire who’s breaking the diamond cartel. He’s extracting huge diamonds, which the women love, and Tiffany is the place to buy them.

David Asman: And one of the ways you might be able to afford one of those baubles is by winning at the casinos, but casinos have been going through some tough times. However you’ve found one that’s a winner. Tell us about it.

Pete Newcomb: It’s one that you’ve never heard of before. It’s called Station Casinos (STN).

David Asman: Why haven’t we heard of Station?

Pete Newcomb: Well, they run about a dozen or so small casinos outside the strip. They don’t cater to tourists; they cater to the local crowd. Vegas is a city growing by about 60,000 or so a year, and they really cater to the local crowd.

Bill Baldwin, editor: Well, the motto of the casino industry is, “Never give a sucker an even break,” so I definitely would, if I were into crapshoots, speculate on that one.

David Asman: All right, two winners for Station Casinos. Now Bill, DaimlerChrysler (DCX): Everybody was really excited about DaimlerChrysler, when they got together, but now they’re thinking about splitting?

Bill Baldwin: Well, I think it would be a great little stock if you could erase the second half of the name. It would be as simple as this.

David Asman: Get rid of Chrysler? What would Lee Iacoca do?

Bill Baldwin: Wait a minute now. You’d have the Germans back in Germany with a superb brand name, Mercedes Benz. And you could declare victory in the United States and go home. Just spin it off to shareholders.

Victoria Murphy: I think the split would be a great idea, especially for Daimler, but I would avoid all US automakers right now, simply because of the labor contracts that they’re under. Japanese automakers have at least a $1,000 cost advantage going into every car. And they’ve got 60 percent of the US market, so I don’t like any of those guys.

Bill Baldwin: Very legitimate with regard to Chrysler, which I’m not sure I would want to own after the split off, but back in Germany you’ve got $70,000 cars, labor is not as big an issue.

David Asman: Pete, which would you rather have, a Chrysler or a Mercedes?

Pete Newcomb: I actually like the Chrysler Pacifica, but, you know what? Every analyst report I’ve read does not expect these guys to be making any money over the next year or two. I’d just stay away.

Makers & Breakers

Lennar (LEN)

Sam Lieber, portfolio manager of the Alpine US Real Estate Equity Fund: MAKER

Lennar is the dominant homebuilder in its industry. This is an industry which has been growing, in part, through market share gains, consolidation of the industry of which Lennar has been, arguably, the best consolidator in the whole game.

David Asman: And they’ve been doing extremely well, but have they climbed too high?

Sam Lieber: Not at all. Their stock is trading at a low P/E ratio, seven-and-a-half times, a fraction of what they used to trade at ten years ago.

Mike Ozanian, senior editor: BREAKER

It’s an attractive stock, but I’m a breaker, simply on principle. The family that runs this company controls pretty much all of the voting shares. If I buy the stock, I get no vote. I don’t want to buy anything that I get no say in.

Pete Newcomb, senior editor: MAKER

My colleague here is turning into a shareholder activist. You know what? To hell with the shareholders! This company is really well run, there’s a lot of growth left, I like it.

Ryland Group (RYL)

Sam Lieber: MAKER

Ryland has grown in a different way. Not through acquisitions, but Ryland has actually gone out and organically growth their business. They’ve improved their margins, it’s just a great business, in general. Nationwide, they’ve had fifty-odd percent earnings growth in the last five years, per year. That’s phenomenal.

David Asman: Now, if Lennar is the leader, why chose Ryland at all?

Sam Lieber: Because Ryland is an acquisition target. They could be a target for Lennar in several years.

David Asman: And when something’s an acquisition target it means the price might go way up. Do you think it might double?

Sam Lieber: Double may be tough, but fifty percent?

Pete Newcomb: MAKER

You know what? I like this one too. Earnings are up 55 percent, it’s a takeover candidate, and, you know, they’re buying back shares. The balance sheet is really strong here.

David Asman: Who’s thinking of taking it over?

Pete Newcomb: People like Lennar, and maybe Pulte Homes (PHM).

Mike Ozanian: MAKER

I’m a maker on this one, because their earnings growth has been coming, largely, from an increase in volume. They haven’t had to raise prices very much to boost earnings, which is great because, unfortunately, at this point in the expansion, incomes aren’t rising yet. So I think that’s a very bullish sign.

David Asman: Now the problem with both of these, although it may not be a problem, is that it’s a volatile market. A lot of people say that real estate has gone up about as far as it’s going to go. If interest rates go up, as some people say they might, what happens to these stocks.

Sam Lieber: Well, I’ll tell you. Everybody’s been saying for five years that these stocks have gone as good as they can be, and for five years they’ve had record sales growth. So right now, we just had a record in existing home sales, just yesterday announced. I think this is a great story.

David Asman: But, Mike, for five years we’ve had interest rates going down. If, in fact, they do go up, what happens to these stocks?

Mike Ozanian: If interest rates go up, they won’t do as well, but I think they’ll still do well, and this is why: It’s not like the old days where they kept a ton of land on their books. Their inventories are a lot leaner than they used to be.