President and CEO of Hovnanian Enterprises (HOV), Ara Hovnanian, declared in the recent 4th-quarter conference call that his company “has the liquidity to ride through the difficult housing environment” and emerge “very well positioned to participate in the eventual recovery.” Hovnanian believes his company has the edge over other builders through “long term strategies of offering a broad product array” in nationwide markets. With over 800 million in cash and no significant debt covenants maturing over the next 3 years, Ara Hovnanian could emerge as the proverbial “Comeback Kid.”
Ara’s staunch conviction, abundant cash position, and oversold stock price makes HOV attractive. Current short positions are overdone with 40% of the float sold short. This could fuel a 2-3 day short-cover rally that could result in an abrupt upward surge. Ara has been playing his cards close to his chest and may just surprise the market as DHI did with its recent earnings surprise.
The December 08 “Existing Home Sales” numbers provided strong evidence that qualified buyers are actively buying single family homes again, and are most likely signaling a bottom in housing prices. Factor in a 4.5% or 5% interest rate, tax refunds on the way to buyers, and the knowledge that the hottest season for real estate is just beginning in earnest (February – June comprises 60% of all home sales), and you too may conclude that now is the time to buy.
We are definitely buyers at this level.
Disclosure: Long HOV.