You Won't Believe What Sector I Want You to Buy

You Won't Believe What Sector I Want You to Buy
By Frank Curzio, editor, Penny Stock Specialist
March 15, 2010

Washington D.C. screwed taxpayers... again.

After providing $180 billion to bail out AIG and $125 billion to prop up Fannie Mae and Freddie Mac (money taxpayers may never get back), Obama just gave billions of dollars in handouts to homebuilders.

These handouts come in the form of enormous new tax breaks, just signed into law last year. The tax breaks allow homebuilders to offset losses incurred in 2008 and 2009 against profits booked in the past five years. Previously, homebuilders were allowed to offset losses against just two years of profits.

In short, a homebuilder that paid a huge amount in taxes during the boom years from 2004 to 2006 can now actually get a refund (tax credit) against its losses in 2008 and 2009. This bizarre development means homebuilders are pulling money out of the tax pool from a few years ago and placing it back on their books.

If you haven't heard of this tax change, you're with most Americans. It was secretly added into the Worker, Homeownership and Business Assistance Act of 2009. That law extended unemployment benefits by 20 weeks and renewed the first-time homebuyer credit. Homebuilders are already reaping huge results...

On March 2, for example, builder Hovnanian reported it earned $236 million in its fiscal third quarter. It was Hovnanian's first profit since 2006. Analysts were expecting a loss of $319 million. The company saved $291 million from the tax break. This is an extraordinary difference between what Wall Street expected and what Hovnanian actually did.

Earlier this year, on February 6, builder KB Home reported a first-quarter profit of $48 million. Without the tax benefit, the homebuilder would have reported a loss of $53 million. The company saved $101 million from the tax break... almost 10% of its current market cap.

Hovnanian and KB Home are not alone...

Have a look at the chart below. It's a list of homebuilders and the amount of cash they received last quarter because of the law change. I also compared these profits to the net income for each homebuilder in the previous 12 months.

Homebuilder	Profits Last Quarter From New Tax Law	Net Income Previous 12 Months
Pulte Homes (PHM)	$800 million	-$1.2 billion
Hovnanian (HOV)	$291 million	-$302 million
KB Home (KBH)	$191 million	-$101 million
DR Horton (DHI)	$149 million	-$290 million
Beazer (BZH)	$101 million	-$61 million
Standard Pac (SPF)	$94 million	-$14 million

Notice how every homebuilder on the list reported losses over the 12-month period before the tax benefit.

Sure, home inventory is high... Foreclosures are near record levels... And prices may come down farther... I get it.

But these homebuilders received hundreds of millions of dollars for free and are buying up land at rock-bottom prices.

I'm in the process of buying a home in Florida. I just locked in a 30-year fixed mortgage rate of 4.85% from Wells Fargo. While doing a walkthrough of the house with my real estate agent, her cell phone rang every five minutes. She said it's busy right now. Other real estate agents I spoke to over the past few weeks in other parts of the country echoed the sentiment.

Today's sales will be factored into results when homebuilders report earnings in May. I expect results to be strong... and I don't believe stock prices have factored in the coming (temporary) earnings surge from the first-time homebuyers tax credit and near-record-low mortgage rates.

My Plan for Trading Gold Stocks

Make 50% from Billionaire Carl Icahn's Latest Target

There are several ways to play the homebuilder rally. You can buy individual stocks like DR Horton or Pulte, which have huge cash hoards. Another way is to purchase the SPDR S&P homebuilder fund. The symbol is XHB.

I suggest using patience on your entry. Stocks have run up over the past few weeks, so in the short term, they are overbought. You'll get a better price on this trade in a week or two.

Good trading,

Frank Curzio

Demand for this commodity is guaranteed to surge
...and it's still trading at one of its cheapest levels in over 5 years.

A potentially huge bullish signal
You must watch this level...

"Atlas Shrugged" taxes blow up in Maryland's face
Successful people refuse to pay for more welfare and handouts... AWESOME.

•	Regional banks rally... BB&T, Fifth Third, M&T Bank, and others hit fresh highs.
•	New highs for real estate giants Ventas, Public Storage, Vornado, Boston Properties, and Equity Residential.
•	Fertilizer stocks Agrium, Compass Minerals, and Potash surge to new highs.
•	Investors taking on risk... two-year Treasury yield jumps to 0.99%, a two-month high.

	Last	Change	52-Wk
S&P 500	1149.99	-0.02%	+53.18%
Oil (USO)	39.51	-1.35%	+39.96%
Gold (GLD)	107.95	-0.60%	+18.50%
Silver (SLV)	16.76	-0.30%	+31.04%
U.S. Dollar	79.80	-0.57%	-8.49%
Euro	1.38	+0.68%	+6.60%
VIX	17.58	-2.66%	-57.31%
HUI	416.52	-0.85%	+46.65%
10-Year Yield	3.71%	-0.01	1.05

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Company	Sym	Industry
Canon	CAJ	cameras
Anadarko	APC	oil & gas drilling
Honeywell	HON	defense
Dominion	D	utilities
PACCAR	PCAR	trucks
Parker Hannifin	PH	industrial equip
Universal Health	UHS	hospitals
Apple	AAPL	iPhones
Home Depot	HD	home goods
LM Ericsson	ERIC	telecom
DuPont	DD	chemicals
BB&T	BBT	regional bank
Vornado	VNO	retail REIT
M&T Bank	MTB	regional bank
Rowan	RDC	oil & gas drilling
Pepsico	PEP	soft drinks
EMC	EMC	data storage
Potash	POT	fertilizer
Carnival	CCL	cruises
Baidu	BIDU	online search
Smith Intl	SII	oil services
Edwards	EW	medical devices
Compass	CMP	fertilizer
Berkshire	BRK-A	insurance
Ford	F	autos
MetLife	MET	insurance
Ventas	VTR	healthcare REIT
Northrop	NOC	defense
Eaton	ETN	industrial equip
Salesforce	CRM	software
Buckeye Partners	BPL	pipelines
Visa	V	credit cards
News Corp	NWSA	entertainment
Nike	NKE	athletic clothes
Thomson Reuters	TRI	news services
Broadcom	BRCM	semiconductors
Fifth Third	FITB	regional bank
Human Genome	HGSI	biotech
PetMed Express	PETS	pet medicine
McDonald's	MCD	fast food
Union Pacific	UNP	railroads
Infosys	INFY	outsourcing
AFLAC	AFL	insurance
Public Storage	PSA	industrial REIT
Agrium	AGU	fertilizer
ONEOK	OKE	utilities
Teva Pharma	TEVA	pharma

Company	Sym	Industry
No lows of note

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