Hovnanian Exits the S&P Top 10

Biotech outfit IDEC Pharmaceuticals replaces the homebuilder in the portfolio of S&P's best investment ideas

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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