This conversation was conducted on February 11th 2008.
Q: How do you position the Home Building sector as a whole?
A: Homebuilders all took a nice breath of fresh air, in late January returning to multi-month highs after the government stepped up with rate cuts and earnings reports from major homebuilders created some speculation that perhaps we have finally seen the worse from the homebuilders. The bears came back at the beginning of February, resulting in a substantial pullback. Today's mass upward movement of homebuilders typifies investors' confusion in the industry at present.
Q: So, what's your current take on Hovnanian Enterprises Inc.?
A: Hovnanian is up more than most because it is one of the more volatile homebuilders. It has a substantial chunk of debt still on its balance sheet, and while some of the top homebuilders have been doing a great job of paying theirs off, Hovnanian borrowed a little bit more in its fourth quarter. That being said, the Company did have some respectable sales figures for its fourth quarter so I think the Company is very functional and once things get better it should be able to overcome its credit risk.
Q: Based on this, what would you tell investors looking to position themselves in this stock?
A: Hovnanian should be a good long term investment, but to maximize profits it may be prudent to wait for a pullback to buy on weakness.
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