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Four analysts and top management from ten sector firms examine the HomeBuilders Industry sector in this special 64-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info400.htm

TWST: Scott, turning to the valuations, what do the current valuations of the homebuilding stocks suggest? And why don’t the valuations reflect the returns that the companies have been showing?

Mr. Campbell: Current valuations across the group of 12 builders that we track are averaging a p/e multiple of roughly 7.5 times 2001 estimates; then as we look out to 2002, the group is trading at roughly 7 times 2002 numbers. Historically, when multiples are at these levels, it suggests an imminent decline in housing activity, followed closely by a significant earnings decline for the homebuilders. Unfortunately, the market has had that view since 1996, with the exception of a 12-month period between late 1997 and late 1998, when p/e multiples last reached the mid-teen level. Basically, the group was largely ignored by investors up until March of last year despite posting pretty impressive earnings growth and consistently improving return metrics, including return on equity and return on invested capital. I think there were two main reasons for this: first, concerns over the length of the current cycle. Up until recently, we have enjoyed the longest period of economic expansion in US history, and I think people had largely been expecting expansion to end and housing activity to follow suit. Second, the technology/Internet phenomenon that developed in 1998-2000 drew a lot of capital away from old economy names, as the theory goes.

TWST: Scott, are there one or two stocks that you would consider to be really compelling buys in the group today?

Mr. Campbell: Certainly. Our top pick is Pulte (NYSE:PHM), and I like the fact that strategically they are acquiring Del Webb. Finally, from a small cap perspective, we like Crossmann Communities (Nasdaq:CROS). It’s not a very well-known name; I believe only three firms officially follow it. Earnings growth at Crossmann is shaping up to be very strong — among the highest in the industry. We think management has some of the best operational expertise in the industry. Despite selling homes that are priced at roughly 60% of the industry average, they have generated operating margins that are slightly less than the industry, comparable returns on equity, and a return on assets that is double the industry average. In essence, they’re doing a lot with a little, so to speak. We’re looking for earnings growth of more than 50% this year, followed by mid-teens earnings growth in 2002. The stock is relatively cheap on those metrics, and management will also face the enviable task of deciding how to utilize excess cash flow.

TWST: Scott, apart from the issue of the integration of Del Webb into Pulte, are there any company-specific issues with any one of these three that investors should be alerted to?

Mr. Campbell: Operationally, I don’t see any issues to speak of for Pulte, Crossmann or Centex (NYSE:CTX). It’s simply continued execution. However, with Crossmann — and to a certain extent this also applies to some of the other small cap builders — trading liquidity will continue to be an issue. Given the recent run many of the stocks have had, we are hopeful that management teams may consider stock splits as a means to boost float and improve trading liquidity.

This special issue includes:

1) HomeBuilders Industry - In an in-depth (15,000 words) Analyst Roundtable, Scott H. Campbell, Vice President at Raymond James & Associates, Samuel A. Lieber, CEO/ Portfolio Manager at Alpine Management & Research LLC, Carl E. Reichardt, Principal at Banc of America Securities and Joseph Sroka, Vice President at Merrill Lynch, examine the outlook for the sector including, varied mortgage products, tightness of supply and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at ten sector firms asked market insiders about the ability of management teams to create shareholder value.

3) CEO interviews (average 2,500 words). Top management of ten sector firms examine the outlook for their firm and the sector.