Homewreckers- Buy Puts On Armstrong World (NYSE: AWI) and Griffon (NYSE: GFF)

The Trades:

Buy to open the December 21, 2018 put on Armstrong World (NYSE: AWI) with a strike price of $60 at $1.65 or lower. Symbol (AWI181221P60)

Buy to open the January 18, 2019  put on Griffon Corp (NYSE: GFF) with a strike price of $15 at $1.50 or lower. Symbol (GFF190118P15)

*Be patient in your fills. The market is flipping around quite a bit and door maker Jeld (NSDQ: JELD) pre-announced a bad number last night which may put pressure on the group.

Rationale:

Higher interest rates, elevated input costs, and a labor shortage are crimping home builders. Many of the stocks in this group are way down so I spent significant time attempting to find those with worsening fundamentals that are most at risk.

Permits for new home builds fell last month. Annual estimates for the number of new homes built peaked in January and has been flopping around ever since.

Builders have been increasing prices to cover higher building costs. These are due to tariffs on imported materials and elevated wages to lure hard to find laborers. The recent steep jump in mortgage rates is inflating monthly mortgage costs to an untenable level for many buyers.

Earlier this month homebuilder Lennar (NYSE: LEN) cautioned that the housing market is experiencing a “healthy pause”. This is bad news for housing suppliers, many of whom have built up heaps of debt acquiring kindred suppliers.

Armstrong World (NYSE: AWI) is the ceiling and wall portion of Armstrong. Revenue growth is minimal despite some small acquisitions that should have boosted the top line. Although the divestiture of some less profitable businesses might help in the longer term, it increased the company’s current exposure to the domestic housing market.

Armstrong World reports its third quarter on October 29.

Griffon Corp. (NYSE: GFF) is a poor operator even in the best of times. It manufactures closets, garage doors and components for cabinetry.  It has industry low operating margins of 4%, too thin to weather a drop in housing demand. A recent slew of acquisitions leaves it highly levered (as measured by the financial standard of Debt/EBITDA, GFF is levered 6x, one of the highest levels I’ve seen).

Griffon should report its fourth quarter mid-November. A date has not been set yet but I will let you know as soon as it is announced.

 

Stock Talk

Toro

Toro

Can’t find a 1/18/19 expiration for GFF.

Toro

Toro

GFF filled $1.15 Fidelity

MarkS

MarkS

GFF filled @ $1.23 at Fidelity

Maurice

Maurice

GFF filled at $1.35

Maurice

Maurice

sorry $1.22

Maurice

Maurice

AWI filled at $1.65

Daniel Long

Daniel Long

AWI filled for 1.65.
GFF filled for 1.20.
Thanks.
DL

JoeJB

JoeJB

AWI filled at $1.65
GFF filled at $1.15
both around 9:40 this morning

Mark F

Mark F

AWI filled @ 1.30

Mark F

Mark F

Correction 1.27.

Todd Harrell

Todd Harrell

AWI filled @ 1.33
GFF filled @ 1.20

Donald Lewis

Donald Lewis

GFF filled @ 1.34

Ted

Ted

Bought GFF yesterday at $1.30, sold today $1.75
34.6% in one day.

Ted

Ted

scratch that – wasn’t paying attention.

Liranzo S

Liranzo Sanchez

Hi Linda,

Jan 18 is @ 1.75 now, do you think that Nov 16 could work out?

Joanne Zhang

Joanne Zhang

Just bought GFF for 1.45

MarkS

MarkS

Sold 75% of my GFF position for 117% gain

thanks Linda

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