Beazer Homes
(NYSE:BZH) shares dropped $2.71, or 19.37%, to $11.28 after rumors
surfaced that the Atlanta homebuilder was preparing to file for
bankruptcy. The speculation comes amid worries about homebuilders being
able to pay their bills as subprime and variable rate mortgage worries
weigh done on the entire housing sector.
Beazer Homes also
announced last week that it was under federal investigation in North
Carolina for certain company practices. The homebuilder also swung to a
loss in the third quarter after cutting prices to help sales and took
on major charges to write down the value of unsold inventory. While the
situation looks bleak, the company called the bankruptcy rumors
"scurrilous and unfounded", telling investors to refer to its
third-quarter financial statements for "an accurate representation of
the company's financial condition.
Clearly there are some major
problems facing the mortgage and homebuilding markets as delinquencies
continue to rise while housing prices fall. However, such speculation
can also pave the way for cheap stocks for companies able to weather
the storm. After all, who can forget how Equity Office Properties was
formed back in the 1980s? On the crash of the commercial real estate
market after the S&L bust.
Savvy investors able to see
through the smoke and mirrors will surely be able to profit from these
similar situations. Whether or not BZH turns out to be one of these
situations remains to be seen, but it is definitely a stock
worth watching!
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