Hovnanian jumps, takeover talk called ‘spurious’

Interactive Investor (UK)
(AFX UK Focus)
2009-08-05

NEW YORK, Aug 5 (Reuters) – Shares of home builder Hovnanian
Enterprises Inc jumped 11 percent on Wednesday, as short sellers
covered their positions amid signs of a recovering home demand, and an
analyst dismissed takeover speculation around Hovnanian as "spurious."

Hovnanian shares closed up 42 cents at $4.23 on the New York Stock
Exchange, a day after home-building stocks rose on a
stronger-than-expected government report on housing sales. An index of
home construction stocks rose 1.5 percent.

Wells Fargo analyst Carl Reichardt called takeover speculation
"spurious," adding that a 12-percent one-day jump in stock values in
July 2009 was followed by a 25-percent stock drop over the subsequent
10 trading days.

Earlier, Paul Foster, options strategist at Web information site
theflyonthewall.com said: "Hovnanian calls are active as shares rally
on renewed takeover chatter."

Near the end of trading, 8,342 calls traded in Hovnanian, nearly 13
times the number of puts. The combined volume was six times the norm,
according to option analytics firm Trade Alert. Directional sentiment
based on option order flow was 62 percent bullish, its data show.

"This appears to be short covering," said Pete Najarian, a co-founder
of Web information site optionMonster.com, who cited the strong
housing data. "Any time I look at a stock that has a short interest of
over 30 percent of the outstanding shares, exaggerated share price
moves are to be expected."

"Somebody who did have a short interest in a home builder now is not
seeing that business continue to get worse," said Parrish Glover,
equity analyst at Morningstar in Chicago. "While it might not yet be
getting better, it’s not continuing to get worse."

A Hovnanian spokesman said the company does not comment on stock
moves.

The National Association of Realtors reported on Tuesday that pending
sales of existing homes rose in June for the fifth straight month
propelled by historically low mortgage interest rates and lower
prices.

It looked like there were buyers of the August and September $5 call
strikes hoping for additional upside, said WhatsTrading.com option
strategist Frederic Ruffy.

Investors often turn to equity calls, giving the privilege to buy the
company’s shares at a fixed price within a specified time period, to
speculate on share price appreciation.

(Reporting by Nick Zieminski, with additional reporting by Scott
Malone and Doris Frankel; editing by Steve Orlofsky, Gerald
E. McCormick, Leslie Gevirtz) Keywords: HOVNANIAN/SHARES
(nick.zieminski@thomsonreuters.co m +1 646 223 6162; Reuters Messaging:
nick.zieminski.reuters.com@reuters.net)

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