Shares of home-builder Hovnanian Enterprises Inc. (NYSE: HOV) fell sharply in trading Thursday, a day after the company reported a bigger loss than Wall Street had anticipated. By early afternoon, shares of the New Jersey-based company had fallen more than 13% to just over $4 a share.

In reporting its fiscal third quarter earnings Wednesday, Hovnanian said it lost $168.9 million, or $2.16 a share, in the three months ending July 31. That compares with a loss of $202.5 million, or $2.67 a share, in the year-earlier period. Revenue fell 45% to $387.1 million. The company noted its latest quarterly results included $105.7 million in pretax charges to reflect the declining value of land and other assets.

"The economic crisis began in the housing sector and will likely end there," says Stephen Leeb. In his top-notch The Complete Investor he takes a contrary look at two homebuilders.

"Though my view may sound contrarian to a fault, a close look at the housing market, especially given recent government actions, suggests a recovery will happen sooner rather than later and be stronger rather than weaker.

"When home prices decline, buyers pull back, afraid of buying too soon. This leads to further declines and further buyer reluctance. No surprise, then, that housing starts have fallen dramatically.

"Meanwhile, consumers, who had been borrowing money based on the value of their homes, found this source of credit drying up, which dealt a further blow to the economy.

"It is a vicious circle indeed. Ultimately, though, it will almost certainly end with more willing lenders and a stronger housing market as the huge amounts of money being flooded into the system start boosting balance sheets of potential lenders.

Tool supplier Stanley Works (NYSE: SWK) remains optimistic about earnings into 2008, despite deterioration of the U.S. homebuilding market. Even in 4Q2007, when the domestic construction market softened like warm butter, Stanley Works managed to post more than respectable earnings. 4Q sales increased 15% to $1.2 billion. Diluted EPS increased 7% to $1.11, operating margins increased and free cash flow increased 89% from 4Q2006.

4Q2007 was a tough quarter in the U.S., as subprime mortgage losses ran into the billions, banks tightened credit, and construction slowed dramatically. Despite the meltdown in the U.S. market, Stanley posted double-digit sales increases in all its international markets, which helped to offset slower sales in the U.S. The story is the same for FY2007.

Overall, the company is in good shape with net sales up 12% to $4.5 billion, although only 2% of that growth is organic. More than half of the increase was due to acquisitions. FY2007 diluted EPS increased 15% to $4.00, and free cash flow increased by $99 million to $457 million. Despite forecasting an organic growth rate of 0-1%, CEO John Lundgren states that Stanley Works is well positioned to withstand a possible U.S. recession.

Furniture Brands-(NYSE:FBN) markets residential furniture through Broyhill Furniture, Lane Furniture, Thomasville Furniture and HDM Furniture. FBN is recently up $3.30 to $13.44 after Samson Holding reported a 14.9% stake in FBN. Samson has indicated it may seek to acquire control of the company. FBN reported June 2007 quarterly total revenue of $535 million. FBN will host an investor day on 10/23 in New York City. FBN October option implied volatility of 54 is above its 26-week average of 35 according to Track Data, suggesting larger price risk.

USG-(NYSE: USG), a manufacturer and distributor of building materials, is recently up $.57 to $38.14 on renewed & unconfirmed takeover chatter. Unconfirmed chatter is circulating today that a consortium of four of the largest Chinese construction companies wants to acquire a 24% stake in USG. China Overseas Land is one of the names mentioned in the consortium. Warren Buffet is an owner of approximately 19% of USG. USG October 40 calls have traded 72 times on transaction volume of 2,103 contracts above its open interest of 2,013 contracts. USG October option implied volatility of 42 is above its 26-week average of 32 according to Track Data suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

MOST NOTEWORTHY: EMC Corp, Blue Nile, Getty Images and Sonus Networks were today's noteworthy initiations:

• EMC Corporation (NYSE: EMC) was initiated with a Buy rating and $24 target at Banc of America as they believe the company's core business is undervalued and should benefit from penetration of new market segments. Deutsche Bank views shares of the stock as fully valued at current levels, starting shares off with a Hold rating and $20 target. Jefferies believes the divergence in valuation of core EMC and majority-held VMWare Inc (NYSE: VMW) creates an attractive entry point. The firm started EMC shares with a Buy rating and $25 target.
  
• CIBC finds shares of Blue Nile (NASDAQ: NILE) fairly valued and sees challenges as competition increases. The firm started shares with a Sector Performer rating.
  
• CIBC also initiated shares of Getty Images Inc (NYSE: GYI) with a Sector Performer rating, as the firm believes the company's earnings visibility is limited while the business model is in transition.
  
• Coverage of Sonus Networks Inc (NASDAQ: SONS) was resumed with an Overweight rating and $8 target at Thomas Weisel. Their checks indicate the company is experiencing increased order activity in 2H07, and they expect an improved Q3 followed by a very strong Q4.

OTHER DOWNGRADES:

• Credit Suisse Group (NYSE: CS) was initiated with an Overweight rating at Morgan Stanley.
  
• Oppenheimer initiated Consolidated Communications Holdings Inc (NASDAQ: CNSL) with a Buy rating and $24 target.
  
• UBS initiated the U.S. homebuilding sector with a Pessimistic outlook.
  
• UBS initiated shares of Nvidia Corporation (NASDAQ: NVDA) with a Neutral rating and $37 target.
  
• Bear started shares of The Dow Chemical Company (NYSE: DOW) with a Peer Perform rating.
  

Home improvement chain Lowe's Cos. (NYSE: LOW) is moving sharply higher in today's premarket following the release of strong second quarter earnings. Boosted by higher revenues, the North Carolina company reported a 9% jump in quarterly profits.

The company earnings of 67 cents per share, a nice upside surprise from the 61 cents analysts had expected. This was all the bulls needed to push the stock higher. So far this morning, shares of Lowe's are up 6.1%, looking to open up $1.63.

Not surprisingly, the company did have one weakness, and that was sales from stores open a year or more, which was directly related to the slowdown in the housing market. Analysts had factored that in already, and the actual decline was "only" 2.6%.

On today's STOP TRADING segment on CNBC, Jim Cramer said that Union Pacific Corporation (NYSE: UNP) is great because it is up after lowering guidance and shows how bullish the market is for secular growth stories like this. Cramer thinks railroads are in an oligopoly and is still going higher. He thinks they have pricing power where the truckers do not. On The Home Depot, Inc. (NYSE:HD), today was the first day that they have been a real buyer of the stock and this was the first day they have been a buyer. He thinks they can follow the stock up and the new management will want to keep buying per their buyback plan.

The truth is that it would be easy to come out and slam either of these since we had nearly ten Cramerless days (that may be a new term). But in a bull market, the tape speaks for itself. Even homebuilder stocks did well today, and the only person that is actually positive on homebuilders would be a man named Pangloss. Union Pacific is more than surprising that it is up like this. Home Depot is also finally coming into its own after the Dark Ages, and is actually within $1.60 of a 52-week high. Once again, you could make the argument against these but you'd be fighting the hell out of the tape.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

In a recent interview, CFO Joel Rassman of Toll Brothers (NYSE: TOL), the luxury home builder active in 50 U.S. markets, argued that the housing market is influenced much more by consumer confidence and less by specific economic policies such as interest rate changes by the Federal Reserve. Without making personal political statements, Mr. Rassman argued that the housing market will pick up when consumers feel more inspired by their government, feel more confident in the government's policies and its ability to get things done. Mr. Rassman stated that the average housing market slump is generally about 18 months in duration. Consumer confidence dropped dramatically after Hurricane Katrina due to the government's perceived inability to deal with that situation. Mr. Rassman places less importance on the federal budget deficit and mortgage interest rates.

CFO Rassman tried to make the case that the current slump in the housing market is different from previous slumps. The current slump is due to an oversupply of housing rather than job losses, higher interest rates or a slowing economy. He forecast that the housing market will pick up in the spring, right about 18 months after the slump began. Housing stock investors may well share Mr. Rassman's guarded optimism. Just before Toll Brothers released 1Q 2007 figures, investors bid up Toll Brothers options to several dollars above the price of the stock, indicating they think the stock, currently trading at $29.48, will go higher.

Toll Brothers 1Q 2007 figures were, as expected, not good. 1Q 2007 net income was $54.3 million, one-third of 1Q 2006 record net income of $163.9 million. 1Q 2007 total revenues were just over $1 billion, down 19% from 1Q 2006. The number of signed contracts in 1Q 2007 was down 14% from 1Q 2006. The number of buildable lots Toll Brothers controls nationwide is down 26% to 67,500. Despite all the downward pressures in the housing markets, Toll Brothers still plans to build more than 6,000 houses in FY 2007.

Mr. Rassman firmly believes that declining home prices are building up demand for homes. As soon as consumers think the market has bottomed out, which Mr. Rassman argues will be by mid-year, home buyers will begin to enter the market in large numbers as they will not want to wait until it is too late.

MOST NOTEWORTHY: Under Armor Inc (NYSE: UA) and Cardinal Health Inc (NYSE: CAH) are today's most notable upgrades:

• Credit Suisse upgraded Under Armor Inc (NYSE: UA) to Outperform from Neutral with a $65 target and believes that the company is emerging as one of the premier global athletic brands.

• JMP Securities upgraded shares of Cardinal Health Inc (NYSE: CAH) to Outperform from Market Perform to reflect their expectation for accelerated earnings growth over the next three years.

OTHER UPGRADES:

• Friedman, Billings upgraded shares of Urban Outfitters Inc (NASDAQ: URBN) to Outperform from Market Perform to reflect positive momentum in URBN's core division, inventory control and easy upcoming comps.

• Stanford upgraded shares of Vonage Holdings (NYSE: VG) to Hold from Sell on valuation.

• Goldman Sachs upgraded the US Homebuilding Sector to Neutral from Sell saying the worst may be behind the group, but fundamentals remain troubling. The analyst said the next meaningful data will be from the Spring selling season, 6-8 weeks away.
• Goldman upgraded D.R. Horton Inc (NYSE: DHI), MDC Holdings Inc (NYSE: MDC) & Toll Brothers Inc (NYSE: TOL) to Buy from Neutral due to lower-risk at this point in the cycle. The Ryland Group Inc (NYSE: RYL) was upgraded to Neutral from Sell.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Lennar Corp. (NYSE: LEN) is the favorite conservative investment for 2007 from Bernie Schaeffer, editor of The Option Advisor. He notes, "Lennar, one of the largest homebuilding firms in the U.S., is built on a very solid foundation.

"For more than 20 quarters running, the stock has exceeded or matched analysts' per-share earnings expectations. Despite negative earnings revisions and poor housing statistics during the past few months, homebuilding stocks have actually rallied from their July 2006 lows.

"For its part, LEN is back up near six-month highs. It has been a relative-strength leader when compared to its peers in the outperforming ISE Homebuilders Index. Meanwhile, options players are firmly entrenched in the bearish camp. And, nearly 9% of the equity's float has been sold short.

"Analysts are still leery of LEN, as evidenced by the latest Zacks data. Of the 12 brokerage firms ranking the shares, five have awarded a 'hold' rating while two list the stock as a 'strong sell.' A continued upward drive in the shares could spur some upgrade activity, drawing positive attention toward the equity."

To see Bernie's favorite speculative idea for 2007, click here.

Home Depot's (NYSE:HD) CFO Carol Tome expects an economic slowdown between now and the end of 2007, a slowdown lasting roughly one year. Back in September, the retailer said that sales for the remainder of 2006 would come in at the low end of a range of 14% to 17% growth, and for per-share earnings to increase at the low end of a 10% to 14% range. In 2007, sales could slow considerably.

Tome said that Home Depot's worst-case scenario would be for the U.S. housing market and economy to slow to a point where sales at comparable Home Depot stores -- known as "same-store sales" -- could decrease by single-digit percentages of around 4 to 6 percent.

In what seems like the most obvious statement that could be given by a CFO, Tome said that Home Depot's strong balance sheet should allow the company to weather an economic slump while continuing to enhance its overall core retail business.

I'm not sure how a "core business" can be enhanced when the shopping segment temporarily dries up, except for loading more selections and possible categories into Home Depot stores to steal customers from other retailers as everyone fights for every single consumer penny -- especially in a slowdown.

from www.247wallst.com.....

On Jim Cramer's STOP TRADING segment on CNBC at 2:45 PM EST, Cramer was discussing how to play oil prices dropping and a crock of something.

Now that oil has gone to $60, Cramer said he is tired of torture House game because that homebuilder group was the best performer over last month.

Cramer says Sell alternative energy stocks, particularly Ethanol plays. He says even sell solar power. He is discussing the stocks, not the technology. They showed SunPower Corporation (NASDAQ:SPWR), FuelCell Energy, Inc. (NASDAQ:FCEL), Aventine Renewable Energy Holdings, Inc. (NYSE:AVR), Verasun Energy Corporation (NYSE:VSE), Ballard Power Systems, Inc. (NASDAQ:BLDP). He said he is talking about the stocks, not the company.

Crocs, Inc. (NASDAQ:CROX) is up 6% and Cramer thinks they will preannounce upside to the quarter tomorrow at an investor conference presentation. He likes the closed toe cold weather and Disney deals. He says they are hot and go higher. He also noted for the short sellers to watch out.