Steve Eisman's Sohn Conference Presentation on Housing Plays: Long US, Short Canada ~ market folly

Thursday, May 9, 2013

Steve Eisman's Sohn Conference Presentation on Housing Plays: Long US, Short Canada

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Steve Eisman of Emrys Partners (he was previously at FrontPoint).  He presented "Housing: A Tale of Two Countries.  US vs. Canada."  

Long US Housing Plays

US: Fundamentals improving and accelerating. Affordability levels best in decades, Monthly principal and interest, only 14% of incomes. Inventory now at a 30 year low, shadow inventory is fading. Single- family starts should boost public builders. Last year was volume; this year is volume and pricing. California, AZ, NV, and TX are strongest- they were weakest.

3 ways to play it:

1. Homebuilders. Not cheap, but are not pricing in how much fundamentals have improved. Lennar (LEN), Standard Pacific (SPF), Pulte Homes (PHM).

2. Home building products: American Woodmark (AMWD), Fortune Brands Home & Security (FBHS).

3. Land: Forestar Group (FOR). Pure play in land. Colony Financial (CLNY) - real estate loans. Ocwen Financial (OCN) Largest non-bank mortgage servicing company. 25% FCF yield. Growth company, 7x p/e.  OCN seemed to be his favorite pick.  Our Hedge Fund Wisdom newsletter analyzed OCN back in our Q3 2012 issue.  Subscribe to the letter if you want a great company/stock overview to get up to speed.

Short Plays on Canadian Housing

He says that if a housing slowdown comes in Canada, the Canadian banks will really get hit.  "Misaligned incentives and poorly understood housing finance market."

Canada has their own Fannie Mae- called CHMC, which stepped in during 2008-2010 to do almost ALL the loans. Now CHMC is not doing loans, so banks must do it. Says these banks are all over-priced and "over-earning" because the boom from issuing insured loans is over. 

Canadian banks: Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CM), Royal Bank of Canada (RY), Toronto Dominion Bank (TD).

Short Idea: Home Capital Group (HCG.CA). Listed only in Canada. Largest non-prime mortgage originator in Canada. Carries $8.8B on their balance sheet. Has less than $1B equity, yet 100% of the credit risk on those loans. Trades at twice tangible book, expensive.

We've highlighted some past resources on this hedgie, including Eisman's pitch on for-profit education as well as Eisman's thoughts on insurers.

Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

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