Markets & Finance

Hovnanian Exits the S&P Top 10


On Dec. 5, Standard & Poor's equity research group made a change to the S&P Top 10 portfolio -- those issues it considers to be the best candidates for capital gains over the next 6 to 12 months. Biotech outfit IDEC Pharmaceuticals (IDPH) will replace homebuilder Hovnanian (HOV).

S&P downgraded shares of Hovnanian to 3 STARS (hold) from 5 STARS (buy) to reflect a more conservative stance on homebuilders given an expectation for slightly higher mortgage

rates in 2003, and a belief that a peak in the homebuilding cycle is near at hand.

Replacing Hovnanian is IDEC Pharmaceuticals, a leading developer of therapeutics for cancer and autoimmune diseases. Ranking among the select few profitable biotech companies, we at S&P see it posting earnings per share of 84 cents in 2002 and $1.16 in 2003. Based on a net present valuation of IDEC's products and pipeline, we feel the shares are worth $45 to $50. IDEC stock is ranked 5 S&P STARS (buy), along with the other names in the portfolio.

Here's the latest list:

S&P Top 10 Portfolio

Company

Current Price

(12/4/02)

12-Month Target

Investment Rationale

Dean Foods

35.91

45

New products, improved distribution

Procter & Gamble

86.05

100

Foreign exchange trends, recent share-price drop

Wal-Mart

54.44

63

Rising market share, strong international growth

Microchip Technologies

25.97

40

Pure play in microcontroller chips

Nabors Industries

37.30

43

Natural-gas activity expected to rise

IDEC Pharmaceuticals

32.29

47

Leading developer of cancer treatments, profitable

Mohawk Industries

59.62

77

Strong demand, favorable costs

Constellation Brands

24.71

34

New products, lower costs, stock buybacks

Ambac Financial

60.94

78

Solid business model, franchise

Chubb

58.22

72

Valuation, resolution of asbestos issue

For more information about the Top 10 portfolio, please visit http://www.businessweek.com/investor/content/jun2002/pi20020617_8998.htm By Ken Shea and Robert Gold


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