Profiting from Hovnanian - Even in Case of Bankruptcy
To be certain, some homebuilders will go through bankruptcies before this credit debacle is over. But here is a trade where you should win big if Hovnanian (HOV) survives and break even if it goes bankrupt.
Hovnanian has a preferred that trades on Nasdaq (HOVNP) which has a coupon off of a $25 dollar par of 7.6%, or .477 cents a quarter. In March of 2007, it traded at 24.50, almost par. As the housing situation started to unravel, the preferred started to weaken - at some point the company was doing whatever it could do to prevent a bankruptcy filing and halted payments of the preferred dividend. This caused a plunge in the preferred shares.
A situation now exists where you can buy the preferred at a discount to the common. If the preferred ever starts paying dividends again, my bet is that it will spike up to the low 20s, most likely then trading at a significant premium to the common shares. If you buy the preferred shares and short the common, if Hovnanian never recovers your principal will still be protected. Seeing that the company is hemorrhaging cash right now, odds are they will eventually seek Chapter 11 protection.
Buy HOVNP, short HOV.
Disclosure: none
Get Seeking Alpha Free Stock Alerts by Email!
Get Free Stock Alerts by Email!
ETFs In Focus
-
Editor's Picks
-
Most Popular
- Reading the S&P 500's Crashing Waves
- On a Return to Normalcy: Dow 8,500
- Looking Back at Lehman: Lying, Scapegoating and a General Lack of Accountability
- iShares ETF Tracking Error: Risks and Explanations
- U.S. vs. the World: Sectors Matter
- Global Stock Markets: The Crash of 2008?
- Full list of Editor's Picks »
- Nation's Debt: It's Not Being Rescued, It's Being Moved Around »
- Crazy P/E Ratios »
- Clueless - Cramer's Mad Money (10/8/08) »
- Wall Street Breakfast: Must-Know News »
- Cramer: Dow Could Drop Another 14%, Oil's Going to $50 »
- Roger Wiegand: 'Severe Bull Market' Ahead for Gold »
- Awaiting Apple Earnings and Guidance »
- Four Ways to Protect Money During the Fallout »
- Ford, GM on the Chopping Block? »
- Earnings Preview: General Electric »
- Cramer Should Be Suspended »
-
Long Ideas
-
Short Ideas
-
Cramer's Picks
- 'When There's Blood in the Streets', Buy Biotech Stocks
- Midstream MLPs Crashing, Present Opportunity
- A Fresh Look at Shipping Company Stocks
- Panic Selling in InterOil: What Now?
- Potash Corp.: No Liquidity Problems Here
- The Year of the Bear
- Cobalt: More Than Just Blue
- Investors Can Find Comfort in Big Blue
- Hershey: The Perfect Recession Investment?
- Applied Materials Leads by Example
- Full list of Long Ideas »
- The Short Case for General Electric
- Too Late to Short SPY? An Historical Perspective
- Henderson Group: Profit Warning Surprises Short Investors
- Decreasing Chipotle Traffic Could Spell Trouble
- Why I Sold Lowe's Short
- Accor, Host and Marriott: Short Interest Heats Up
- Global Financial Crisis Makes Oil a Great Hedge
- Michael Page International: Stock Down on Market Weakness
- Gaming Stocks Still a Poor Bet - Barron's
- After Coming Rate Cuts, Some Appealing Short ETFs
- Full list of Short Ideas »
- Clueless - Cramer's Mad Money (10/8/08)
- Torpedo Dry Ships - Cramer's Lightning Round (10/8/08)
- Chocolate Lover - Cramer's Mad Money (10/7/08)
- Yield is King - Cramer's Lightning Round (10/7/08)
- Goldman Disses Solar - Cramer's Stop Trading ! (10/7/08)
- Time to Hoard Cash - Cramer's Mad Money (10/6/08)
- Buyers On Strike - Cramer's Stop Trading! (10/6/08)
- Still Bullish on RIMM - Cramer's Lightning Round (10/6/08)
- The Cramer Crash?
- Cramer: Dow Could Drop Another 14%, Oil's Going to $50
- Full list of Cramers Picks »
Trading Center
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »



This article has 4 comments: