I was wondering why Brazilian homebuilder Gafisa (GFA) was so out of the loop with the rest of the emerging market stocks; it appears Bank of America downgraded the company on a potential share offering in the next 6 months. I bought a very small stake back today after being mostly out of the position for many a week (and kicking self daily), but am cognizant of that very ominous gap in the chart over $20 which is where I'd much prefer to reacquire my big stake.

id=BLOGGER_PHOTO_ID_5376990571439679234Via Bloomberg

  • Brazilian homebuilders tumbled, posting their longest losing streak in six months, after Rossi Residencial SA’s share sale heightened concern its larger rivals will follow suit after their stock prices doubled this year.
  • Cyrela Brazil Realty SA Empreendimentos e Participacoes, Brazil’s largest homebuilder, and Gafisa SA, the second-biggest, declined more than 4 percent.
  • “The high demand for Brazilian homebuilders’ shares is boosting expectations that others in the sector, such as Cyrela and Gafisa, can also make offerings,” Eduardo Silveira, an analyst at Fator Corretora de Valores SA, said from Sao Paulo. “This leads to a short-term downward pressure due to shareholders’ dilution.”

Bank of America downgrade

  • Bank of America Corp. analysts Carlos Peyrelongue and Fanny Oreng stripped Gafisa of its“ buy” rating today, saying they expect the company and Cyrela to announce plans to sell stock over the next six months. Sao Paulo-based Gafisa in July called off plans to sell shares, citing “market conditions.”
  • “Despite attractive growth prospects for the sector this year and next, and in some cases, still attractive valuations even if one includes potential equity offers, we would expect homebuilders in Brazil to remain under pressure in the short- term,” the analysts wrote in a note to clients today.
  • Rossi’s stock sale suggests a dilution of Bank of America’s earnings estimates for 2010 and 2011 by 19 percent and 15 percent, respectively, they wrote.

I didn't realize the other homebuilders in Brazil had done as well as Gafisa (the others don't trade in the US)

  • Rossi has jumped 187 percent in 2009, while Cyrela surged 129 percent and Gafisa rose 139 percent. The companies account for three of the four biggest gains in the Bovespa, which has added 48 percent in 2009.

[Aug 3, 2009: Gafisa Earnings Weaker than Expected, Does not Matter]

[Mar 30, 2009: Restarting Gafisa as Sam Zell Increases Stake]

[Oct 22, 2008: Sam Zell Increases Stake to Gafisa to 18.7%]

[Aug 17, 2008: Gafisa Earnings]

[Nov 19, 2007: Initiated a Position in Gafisa - Brazilian Homebuilder]

Long Gafisa in fund; no personal position