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Seven analysts and top management from sixteen sector firms examine the homebuilding industry sector in this special 89-page Homebuilding Industry issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info506.htm

TWST: What are your expectations for the building materials companies in your universe as we move through 2002 into 2003?

Mr. Marshall: I am looking for the building materials manufacturers and distributors to outperform the homebuilders this year as that demand eventually works its way down the food chain. We’re looking for modest but steady growth on a sequential basis, and it’s going to be driven by not only increases in unit volumes, but by better pricing. I think pricing is something a lot of people overlook, but it was pricing that really hurt these companies in the first quarter of calendar 2001, as the distributors tried to clear out the channel. But pricing has been on the rebound here, and I think it will be slow but steady progress as we go through calendar 2002.

TWST: To what extent is this sector vulnerable in a weak economic environment?

Mr. Marshall: The risk is ever-present. The consumer strength we’ve seen over the past six to eight months could lapse for a quarter or two. We have gone through a very robust refinancing cycle. That refinancing activity seems to have trailed off as we’ve gotten to the beginning of January 2002. That new money from last year’s refinancing cycle, however, is in the system. Estimates are that approximately 35% of incremental cash flow picked up by the consumer via mortgage refinancing is spent on fixing up the home.

TWST: Is Masco the largest company in your universe?

Mr. Marshall: Masco (NYSE:MAS) is the largest company in our universe. It is a Strong Buy rated stock for us. It’s also on our focus list. Masco is pretty much the preeminent manufacturer of building materials in the US. They focus on branded building products. Roughly 35% of their production goes into the DIY channel, 30% into wholesale, and approximately 35% into the new construction segment. The company has consistently held a trailing p/e multiple of 20 times in non-recessionary periods. Masco was especially hard hit by the deterioration we saw in pricing in the first calendar quarter of 2001. Since then they’ve made slow, steady progress, and they’re starting to see a pickup in most of their end markets. They pre-released in late December, saying they expected to come in ahead of consensus estimates when they report their fourth quarter.

TWST: Are there any challenges that you see that should be noted?

Mr. Marshall: The one big challenge is I think investors have to be very cognizant that they don’t let the wagon get before the horse here. The bounce back in the housing related markets is not going to be as fast and furious as past recoveries. These segments have held up relatively well during this recession, so as everybody else has been saying: it’s going to be a very modest upturn as we go forward.

TWST: You’re not looking for a double dip, are you?

Mr. Marshall: No. I was at the National Homebuilders Show this past weekend, and the builders are indicating that demand remains fairly robust for them. Nobody is seeing any back-sliding at this point. I think the consumer remains engaged and is continuing to invest in housing.

This special issue includes:

1) Homebuilding Industry - In an in-depth (13,500 words) Analyst Roundtable, Scott H. Campbell, Vice President-Homebuilding and REIT Equity Research at Raymond James & Associates, David Jarrett, Vice President at Credit Lyonnais Securities (USA) Inc., Samuel A. Lieber, CEO of Alpine Management & Research, LLC, Joseph Sroka, Vice President at Merrill Lynch & Co., Inc., James Wilson, Managing Director at Jolson Merchant Partners Group, LLC, examine the outlook for the sector including industry consolidation, interest rate outlook and share specific stock recommendations.

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

3) Outlook for Homebuilding Stocks - In an in-depth (5,000 words) Analyst Interview, Carl E. Reichardt, Principal at Banc of America Securities, examines the outlook for the sector including and shares specific stock recommendations.

4) Building Materials Manufacturers - In an in-depth (3,900 words) Analyst Interview, Robert Marshall, Senior Analyst following the housing/building materials sector at Wachovia Securities, examines the outlook for the sector including and shares specific stock recommendations.

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