HOV Revisited: Still on Fire

Written by GSCR Staff   
Friday, 28 December 2012 11:02

Yesterday, the US Commerce Department report stated that the November new home sales were the highest since April 2010, increasing 4.4% to a 377,000 annual pace.  As we have been mentioning in recent reports, this news is part of a general trend indicating the US housing market maybe climbing out of the doldrums as interest rates remain low and foreclosure inventories continue to clear.

What does this mean for us in the small-cap investing space?  Buy, buy, baby!  An old  favorite from this past summer, Hovnanian Enterprises, Inc. (NYSE – HOV - $6.66), is up over 500% since a low of $1.03 in October 2011 and hit a 52-week high of $7.00 right before Christmas this year.

Hovnanian is headquartered out of New Jersey and was founded in 1959.  The company designs, builds, sells, and provides relevant financial services in 192 communities in 37 markets across the country.  It provides single-family attached and detached models, attached townhomes and condominiums, and urban models as part of its design line up and markets to all segments from first-time to luxury buyers.

The stock looks extremely strong from the technical perspective and is on a serious momentum run with relative heavy volume.  Almost 44 million shares were traded on the 26th, the day after Christmas.  On the revenue side there is positive news as well.  First, the company reported its first pre-tax quarterly profit since 2006 in 3Q12.  Home prices have increased in 60% of their communities and net contracts are up 19%

We believe the revenue side will continue to be a positive story for HOV and keep the stock building on its momentum.  Look for it to approach $8-9 early next year.

Happy New Year!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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