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Hodges Friday Fast Five

"In the investment business, you go to school every day, but never graduate." - Don Hodges

Friday Fast Five - 3/18/2022

by Hodges Investment Team, on Mar 18, 2022 9:00:00 AM

Five interesting things that Hodges Capital research analysts discovered this week...

#1 EUROPEAN STEEL: Our industry sources suggest that Russia, Ukraine, and Belarus, make up roughly 50% of the reinforcing bar (rebar) supply and approximately 30% to 40% of the merchant steel bar to the European Union. Consequently, steel supply chains in the European Union have become at risk, and steel prices have risen along with other commodities, which could benefit producers in North America and Western Europe.

#2 TEXAS LAND RUSH: The Texas Real Estate Research Center at Texas A&M University reported a 53% year-over-year increase in the number of acres sold in Texas in 2021. 846,347 acres changed hands in 2021 at an average price per acre of $3,954 (+29%).

#3 PRICING IN RISK: The KBW Bank Index is down 17% since the January 13th, 2022, highs versus the S&P down 12% since its high on January 3rd. Analysis conducted by Deutsche Bank indicates there have been 27 bear markets since 1966 (defined as declines of at least 20%) with the average bank stock declining 30% during those markets. We believe the market is pricing in the probability of a recession.  

#4 OVERBOUGHT, BUT NOT OVER-OWNED: The S&P Energy sector is trading nearly 40% above its 200-day moving average, close to matching its high watermark from 1980. The difference of course then was the sector was 27% of the S&P versus about 4% today. The S&P weighting has doubled from the 2020 low of 2%, but the entire sector is still smaller than one Apple or one Microsoft. – Strategas

#5 AFFORDABILITY: “We know that interest rates have been on the forefront of everyone’s minds. So, we wanted to put into perspective how we anticipate rising interest rates will affect our buyers. Looking back at December and January, our average buyer had a debt-to-income ratio of 34.4%, most commonly referred to as a back-end ratio with a credit score of more than 750. Should rates go up to 5% in 2022, we can see average debt-to-income ratios increase by 2% to 4%. Overall, this is still well below the 43% level for back-end ratios that we would try to stay at or under in order not to potentially impact loan approvals.” – Jed Dolson, COO of Green Brick Partners


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Hodges Private Client is a program offered through Hodges Capital Management, Inc. (“HCM”). HCM is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”), is a wholly owned subsidiary of Hodges Capital Holdings and serves as investment advisor to the Hodges Funds. HCM is affiliated with First Dallas Securities, Inc, a broker-dealer, and investment advisor registered with the SEC.

This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.

All information referenced herein is from sources believed to be reliable and is provided as general market commentary and does not constitute investment advice. This material was created for informational purposes only and the opinions expressed are solely those of HCM. HCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information. The data and information are provided as of the date referenced and are subject to change without notice.

Hodges Friday Fast Five

We aim to help investors separate the news from the noise by providing our perspective. Every Friday the Hodges Private Client research analysts list the five most interesting things they discovered that week. Subscribe to receive the Hodges Friday Fast Five in your inbox every Friday. 

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