Beaten-down homebuilder stocks got a boost Friday after a rumor floated around that Warren Buffett is buying shares of Hovnanian (HOV) .
Berkshire Hathaway (BRK.A) , the investment vehicle of Buffett, is known to buy stocks on the cheap. The firm declined to comment on the rumor, saying its long-standing policy is to never discuss its investment activities except when it is legally required to do so.
Two sources who closely follow the homebuilding industry said they would be surprised if the rumor turned out to be true.
" [Buffett] was never involved in past. I don't think he would get involved now," says one sell-side analyst.
A hedge fund source also expressed skepticism. "Housing has not bottomed yet, so why would he buy now?" he says.
Nonetheless, the rumor lifted nearly all homebuilder stocks. Hovnanian shares were up $1.47, or 8.8%, to $18.02. The company didn't immediately return a call seeking comment.
Brookfield Homes (BHS) jumped 5.1% to $29.65; Centex (CTX) added 4.4% to $43.45; NVR (NVR) climbed 4.4% to 710.13; and Toll Brothers (TOL) rose 3.7% to $26.41.
"I think it's still too early to start buying the stocks, given that we are barely starting to see the tip of the iceberg in terms of foreclosures, and the biggest impairment charges are still ahead of us," says Alex Barron, an analyst with Agency Trading Group.
Buffett Rumor Lifts Builders
This was no brainer trade. Heavily shorted sector, extremely pessimistic prognosis, usual suspects were at work , claiming home builders have more downside and they will trade in single digit. On the short side, stocks don't just go down in one smooth motion, there are vicious counter trend rallies. With todays action more buyers might jump in, making life more miserable for shorts.