There’s No Place Like Home: Investing in Builders of Active Retirement Communities

When Dorothy Gale left Kansas for the second time in 1945, and returned to Oz to find a husband and start a family, little did she know that she was giving rise to an emerald green tidal wave which would soon be known as the Baby Boom Generation.  Renowned as she was for her financial acumen and her close association with the Wizard of Wall Street, she immediately began her retirement planning with the courageous help of the Lion of Real Estate and a very smart scarecrow who knew that 55+ active retirement communities would someday be the Yellow Brick Road to financial success.

Quickly realizing that her children, Frick and Frack, would soon be joining tens of millions of Technicolor Munchkins of the post-war era, she created a stock portfolio of housing companies that build active retirement communities, and with a little help from friends in high places, profited from the vagaries of a slumping real estate market that lasted for several years.  Cost-averaging into a number of severely beat-up stocks, Dorothy set herself up to make a killing in real estate that would one day rival the legendary  melting of the Wicked Witch of the West. 

At the top of her list sits Toll Brothers, (symbol TOL) a builder of high-end retirement villages throughout the Northeast, upper Mid-west, Florida, and California.  With condos and single-family homes ranging from the upper $200,000s to over a million dollars, Toll Brothers caters to well-heeled Boomers seeking retirement living in secure, gated communities of luxury homes.  Being a Fortune 500 company with a reputation for unsurpassed quality, Toll Brothers is the successor to three generations of homebuilders cite=”mailto:Alan” datetime=”2009-01-20T15:43″>, > and is still managed by the Toll family.  One of Dorothy’s favorite long-term picks in the housing sector, the company is presently at the lower end of its three-year trading range. 

One of the smaller developers in the active retirement sector cite=”mailto:Alan” datetime=”2009-01-20T15:44″>, > and a favorite among ageing Munchkins, is another family-operated, publicly traded company, K. Hovnanian Homes (symbol HOV).  With over 50 years of family-led management, Hovnanian specializes in resort-style communities with amenities such as club houses, pools, spas, fitness centers, tennis courts, game rooms, libraries, and computer centers, along with bistros and ballrooms in some locations. Offering floor plans from 1900 to 2800 square feet, with prices starting in the high $100,000s and going up to the mid-$700,000s, Hovnanian is a solid play in this sector of the home building market.  Their Four Seasons communities, which are situated primarily in California, are aggressively pursuing the 55+ crowd in search of their own little piece of Oz, and the stock, which is currently in the doldrums, is selling at roughly a quarter of its three-year high.  In Dorothy’s opinion, this stock is a no-brainer, even for the investor with no more smarts than a straw man.

Another prime pick in the 55+  active retirement market is the severely beaten-down, Lennar Corporation, (symbol LEN) a major developer of active retirement condos and town homes from the mid $100,000s and up.  Their stock has fallen from a three-year high of over $30 to its current price of just over $13, but despite their exposure in the primary and secondary mortgage markets, their price/sales is quite attractive at its current stock price.  Like most of the publicly traded home builders around the country, the big questions remain, how much downside is left in this sector, and which companies will survive?  With almost all of the bad news already priced into this stock cite=”mailto:Alan” datetime=”2009-01-20T15:53″>, > and short interest as a percentage of float at a fairly high level, Lennar is looking like a high risk/high reward play with upside potential akin to Emerald City High Rise apartments.  For a company that is actually paying dividends in this battered sector, Lennar may well be on the yellow brick road to recovery, with a brilliant future.

Though the housing market is likely to remain flat for the foreseeable future, this may well be the opportunity for the aggressive investor to begin to accumulate these stocks and wait for the payoff at the end of the rainbow.  One thing is for sure: We are not in Kansas anymore.

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