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HOV None

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Hovnanian - HOV - close: 53.37 chg: +1.49 stop: 49.99

Company Description:
Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, Chairman, is headquartered in Red Bank, New Jersey. The Company is one of the nation's largest homebuilders with operations in Arizona, California, Delaware, Florida, Illinois, Maryland, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. The Company's homes are marketed and sold under the trade names K. Hovnanian Homes, Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster Homes, Forecast Homes, Parkside Homes, Brighton Homes, Parkwood Builders, Great Western Homes, Windward Homes, Cambridge Homes and Town & Country Homes. As the developer of K. Hovnanian's Four Seasons communities, the Company is also one of the nation's largest builders of active adult homes. (source: company press release)

Why We Like It:
We believe that comments about the demise of the homebuilders has once again been issued prematurely. Yes, the rise in interest rates has been a factor even if it only affected investor confidence. Currently Wall Street still expects the FOMC to raise rates again at the next meeting but beyond that the future of rates will be much debated and it's possible the Fed could halt its current strategy and leave rates in the 3.00-3.25 percent range. This will still leave mortgage rates historically low and we're approaching one of the best seasons of the year for homebuilders. Focusing more specifically on the home building sector there has been some positive analyst comments in the last month about a strong Q1 and Q2 for the group and using the recent weakness as a buying opportunity. HOV came out today and helped validate those claims. Here is an excerpt from HOV's press release out this morning:

"For the second quarter of fiscal 2005, the dollar value of net contracts, including unconsolidated joint ventures, increased 25.3%, and the number of net contracts increased 8.5%, when compared with the second quarter last year. The sales value of contract backlog at April 30, 2005, including unconsolidated joint ventures, increased 61.0% on a year-over-year basis, and the number of homes in contract backlog increased 35.7% when compared to the end of the second quarter of fiscal 2004. For the month of April 2005, the dollar value of net contracts, including unconsolidated joint ventures, rose 50.6%, while the number of contracts increased 20.1%, when compared with April 2004."

It doesn't sound like HOV is experiencing any sort of slow down and the stock price looks poised to breakout over resistance near $54.00. If HOV does trade above the $54.00 level it will reverse its P&F chart from a sell signal into a new triple-top breakout buy signal. Our strategy is to use a TRIGGER at $54.26 to open the play. Our short-term target will be the $59.00-60.00 range.

Suggested Options:
We are suggesting the June calls.

BUY CALL JUN 50.00 HOV-FJ OI= 519 current ask $5.30
BUY CALL JUN 55.00 HOV-FK OI=1835 current ask $2.40
BUY CALL JUN 60.00 HOV-FL OI= 206 current ask $0.85

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 03/02/05 (confirmed)
Average Daily Volume = 1.2 million
 

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