DON HODGES
C0-MANAGER
HODGES FUND

COMPANY: Centex Corporation
TICKER: CTX (NYSE)
PRICE: $49.72
52-WEEK RANGE: $44.13-$79.66
MARKET CAPITALIZATION: $6.03 billion

Don Hodges is co-manager of the Hodges Fund, a growth mutual fund that primarily invests in American companies. He is also the chairman of First Dallas Securities, the fund’s distributor, and Hodges Capital Management. Mr. Hodges spoke with Benjamin Weintraub of The New York Sun about how he doesn’t see the real estate industry as a bubble about to burst.

What does Centex Corporation do?

They build homes, and that business has a bad rap right now. They’re nationwide and in most of the major cities, particularly in the South and Southwest, especially Dallas, Las Vegas, and Houston. They build about 40,000 homes a year.

Why do you like the stock?

Everyone talks about the housing bubble, but when you talk about a bubble it sounds like something that’s going to explode and collapse. It may slow down, but here’s a company that’s earning at a rate this year of about $8.50 a share and trades at $47, and that’s too cheap, even if you assume they won’t earn that much next year. Assuming they earn $6 a share next year, it’s still a cheap stock.

It’s a very well-run company, it’s a seasoned company and they have experienced management. They are somewhat conservative, and I think they do a good job controlling their costs. It’s a very stable company and very bottomline oriented. I would assume that they’re buying in some of their own shares, and they’ll be buying in more throughout the year, and I think that’s a positive.

Do you think the stock is undervalued?

Yes I do. The book value is in the low $40s. It increased this year, and I assume that this stock will be trading below the book value next year. It’s also trading at 5 1/2 times the earnings.

How do you expect the company or industry to perform going forward?

I think the industry is going to have a bit of a slowdown but that doesn’t mean that it’s going to collapse or that they’re not going to do well or make good money. You don’t expect any business to have each quarter be a barn burner where they really blow the lights out, but a lot of people are taking the attitude that because they see a little bit of a slowdown in the industry, that that’s a forerunner of a big industry collapse. I don’t buy that at all.

What’s the company’s revenue?

There 2005 revenue was $12.859 billion, and it’s pretty well spread around the country.

Is it a good time to buy?

I think it is. I think you have to be patient with it. It’s not going to turn around overnight, but there’s value there. It’s the type of thing you buy and kind of forget you own, and I don’t think it will be too long before you realize you’ve made a good investment.

What are the risks?

The main risk I think is just perception. There’s a perception out there that’s fueled by the press and quite a few different people that we’re going to have a collapse in the housing industry and that perception is the biggest risk. But my opinion is contrarian – it’s a contrarian value type investment.

How long will you hold the stock?

I would go into it with the idea that it’s sort of a permanent hold. Of course nothing is permanent, but I see no time frame in the future that I would be eager to get out of the stock.