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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: Let’s move on to Nortek.

Mr. Marshall: Nortek Corporation (NYSE:NTK) is kind of a mini-Masco, a diversified manufacturer of branded building materials. They produce things like vinyl siding and wood windows. They own the Broan range hood brand. They produce gas ranges over in Europe. They are the country’s largest producer of bathroom fans, electrostatic air cleaners, doorbells, etc. So it’s a diversified manufacturer. There’s a lot of leverage in play here. The debt to cap of the company is roughly 70%, but most of the debt is fixed. So when things do turn up, there is a lot of inherent earnings leverage. We have a Strong Buy on Nortek as well.

TWST: Are there any particular challenges that could show up over the next year?

Mr. Marshall: Nortek, like Masco, has historically been a fairly aggressive acquiror. They’ve slowed their acquisition program down for the past year or two. Most of the improvement in the bottom line is going to come from lower costs and expense levels borne of better volumes and integration of acquisitions. The challenge is always maintaining the schedule for integrating those acquisitions, especially when demand slackens.

TWST: We are concentrating mainly on building materials today, but I wondered if you’d just like to say a few words about manufactured housing companies.

Mr. Marshall: As I said earlier, the problems the manufactured housing companies are having are mostly a by-product of overly loose credit in the 1996, 1997, 1998 time frame. A lot of people got financing who shouldn’t have gotten financing. The industry saw repossessions go from roughly 35,000 in 1997 to 90,000 in calendar 2001. And that’s in a segment that is selling 300,000 to 320,000 homes annually, so that’s almost one in three homes sold every year that is being repossessed at this point. As I indicated, the number of production facilities come down by 35%, 40% over the past two and a half years. The finance companies realized that they had written a lot of bad paper as repossesions began to spike in late 1998, early 1999, so they suddenly tightened underwriting standards. On average, 30%-35% of the people who had been getting approved for manufactured home loans were no longer getting approved. That touched off a retail consolidation. We’ve gone from roughly 10,000 retail manufactured home sales centers in late 1998 to 5,500 currently, so there’s been almost a 50% decrease. The result of that is, if you figure that each one of these retail locations had 20-25 homes in inventory, 100,000-125,000 surplus homes over the past two years have been forced into the market by the consolidation, crowding out new home production. The good news is, it looks as if the retail consolidation has wound down at this point and we’re not seeing nearly the same kind of crowd-out effect.

TWST: How do you read the investor sentiment out there surrounding these stocks?

Mr. Marshall: There has definitely been renewed interest over the past eight to 12 months. Looking back to 1998, there was a big sucking sound, and that sound was liquidity being pulled out of old economy segments, such as building materials and manufactured housing, as the capital was being redeployed into the new economy. That has totally reversed at this point. There is a renewed interest in companies with real earnings, real cash flow. All the groups I cover at this point, by historical valuation parameters, peaked in the early to mid-1990s. So I think you’re not only going to have improving demand going forward, but also a valuation expansion, a multiple expansion, as investors move back into these areas.

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.