Saturday, June 30, 2007 at 4:44 PM
Everyone knows that business cycles oscillate from boom to bust every so many years, and real estate is not unique in this regard. Stock prices reflect these trends. Anyone who has looked at a home builder stock in the past couple years is intimately aware of this connection. But what does it mean to say that an industry, as opposed to a stock, is experiencing a downturn? It's not just a matter of saying "real estate stocks are down" -- it's more that they're down, in a roughly correlated manner, over a meaningful common time period.
Let me show you what I'm talking about. Here are 3 major homebuilders -- Centex, Lennar, and Ryland -- in the same graph:
Let me take a moment to explain how I generated this chart, so that you can do your own analysis of stock trends in real estate (or any other industry). Go to Google Finance. Type in the first symbol, CTX (Centex). Hit Enter. You should see a chart for Centex. Use the time window below the chart to change the view to January 2005 through June 2007. (You might have to zoom out more than once.) Now, hit the"Compare" button to the upper left of the chart. Check the boxes for LEN (Lennar)and RYL (Ryland). A short moment later, you should see essentially the same chart that I gave you above. You might have slight differences due to different start and end dates.
Notice that you never asked for LEN or RYL. Google Finance just knew that they were related companies. This works very well in most cases. Type in C (Citigroup), for example, and you'll get other large financial companies from "Compare". How do we know which companies are related to which other ones? Ah, but that's the secret sauce!
So back to the vague term "industry downturn". As you can see in the chart above, all of these stocks are down roughly 35% since the start of 2005. And it should be visually clear to you that they rose, then declined, in roughly the same manner, with RYL being the most volatile of the group.
Has this ever happened before? Sure it has. In the last major real estate stock decline, you can see an eerily similar pattern:
Here, January 2005 has been replaced by January 1989, and June 2007 has been replaced by June 1991. Again, CTX was the most volatile of the group, and again the ups and downs of all 3 major players roughly traced one another. The group as a whole appears to have peaked in August 1989 (although to know for sure we need to adjust for market cap). It then seems to have bottomed in October 1990.
In the first chart, you can see that the group appears to have peaked again in July 2005. So, if we learn from history, it should have bottomed in around September 2006. Indeed, this isn't far off from the real bottom, up to that point, which occurred in July 2006. Unfortunately, as we all now know, that wasn't the bottom...
Of course, comparisons such as this do not make a complete investment analysis, but they can often provide suggestions for further research involving other financial metrics.
I don't own any of the stocks I discussed, and while it's not my business to advise you what to buy or sell, I do hope I've shown you a new and cool way of analyzing related businesses.
13 comments:
Yes Russell, looks good .It will be good to have that correlate with actual homebuilders sales growth and earnings growth, which have slowed.
For example, look at bottom-left box in http://www.investors.com/dgohelp/dgohelpweekly.gif
for CTX RYL LEN etc, these Sales % change numbers would be slowing.
Similarly, as the mid-left box in above graph shows, the annual sales would be slowing.
Feel free to email me agrawalavinash1@yahoo.com. Take care, Avinash
I tried it for a company and I've been surprised to see that I could not compare to all the "Related Companies".
I wonder what is the difference between the "Related companies"'s list and the companies in the compare tab.
Hi Avinash,
We do have earnings information linked from the same page, under "Income Statement":
http://finance.google.com/finance?fstype=ii&q=CTX
But I personally agree with you that it would be useful to display earnings history on the main quote page. While we have plenty of features currently in our design pipeline, I will discuss this with the team for possible future implementation.
Thanks for your idea.
Hi James,
You're right that you can only select the first few companies on the "Related Companies" list. My personal opinion is that you should be able to select any of them for comparison. Granted, with so many line graphs, the comparison plot could get rather overloaded. Nevertheless, I have submitted your comment to our user interface engineers for review. We may address this issue in a future update of Google Finance.
Thanks for your feedback.
Thank you Russell, I had looked at http://finance.google.com/finance?fstype=ii&q=CTX
but it should up to users to get the information they want, easily. for example, if I would like to build a gadget, using your database, as in : http://www.investors.com/dgohelp/dgohelpweekly.gif
that would be great. Or I could at least query, "CTX sales Q3 2006", ie Centex' sales for Q3 of 2006, and so on....
Thanking you, Avinash
Hi Russell,
I don't want to compare to ALL the related companies but I'd like to be able the 3-5 stock that I want to compare to from that list.
This is somewhat exciting now I feel the need to compare
Avinash,
Clearly this deserves some careful thought on our part. We want to provide rapid answers to our users' most common questions without creating cluttered interfaces that attempt to answer too much up front. Just the same, we don't want to restrict the depth of information available to more sophisticated users who can clearly specify what they seek.
I promise to bring this up at our next design discussion.
Thanks again for your input.
Russell - With the charts, it would be nice to be able to add and save our own comment to the chart, so that we can explain various price movements. Perhaps the comments could be made public so that others could benefit as well.
I'd also like an easy way to print multiple charts (preferably with my annotations), so that I can create my own "chart book."
Finally, it would be very useful to add valuation charts, like historical P/E or EV/EBITDA.
Thanks and good work.
Andy
great to know you worked on google finance! its an amazing website, these days to look at charts I do not go to any other website. But I observed that your news links are not comprehensive, sometimes I compared the news links from yahoo to yours and surprisingly in more instances they have more news links than yours, especially latest!
Also, you have portfolios, but no watchlists. i guess that you understand the difference. Though you may not need separate watch lists, if you can provide an optional comments box against each stock entry in portfolios will enable users enter their own comments for themselves to remember (like who recommended, what was the price target, when he is planning to buy etc.) i think it would be very cool, being an avid google finance user, i felt the necessity for it many times. I hope it shows up soon! Keep up the great work.
Home equity loans provide You're right that you can only select the first few companies on the "Related Companies" list. My personal opinion is that you should be able to select any of them for comparison.
for more information about home and finace see http://www.sykinfo.com/
Hi Russell,
It would be very helpful is we could look at "green" builders and compare their sales and profits with the "not very green" builders, also to look at sales and rate of sales. For instance, I have heard that the Groups (Grupe) that did all solar and green energy efficiency homes sold out right away (Sacramento area) versus the other guys across the street that didn't think it was worth it to put on solar panels or do energy efficient building.
Thanks,
Green Turtle
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