Home equity stocks have come roaring back.

Shares in home equity lenders, who generally cater to homeowners with blemished credit records, have gained from 20% to almost 100% since the sector bottomed out in late April.

The companies' share prices had been torpedoed by several highly publicized blowups in the subprime auto sector in January and February.

But now, big players such as FirstPlus Financial Group, Dallas, Contifinancial Corp., New York, and Money Store, Sacramento, Calif., have enjoyed dramatic recoveries, thanks to merger speculation and confidence in home equity products.

Company executives say that investors have been drawn back to the volatile business by the high premiums paid in recent acquisitions.

In mid-April H&R Block kicked off an acquisition boom with its purchase of Fleet Financial Group's home equity unit, Option One Mortgage Corp., Santa Ana, Calif. In late May, Household International bought Transamerica Corp.'s finance unit, and in mid-June Cleveland-based KeyCorp purchased Champion Mortgage, Parsippany, N.J. All three transactions carried premiums of 25% to 33% over book value.

"The catalyst here is all these acquisitions going on," said John Hess, an investor relations specialist for Baton Rouge, La.-based United Co. The hefty premiums that are being paid offer "recognition of what these companies should be valued at."

United Companies traded at $26.50 midday Tuesday, up from an April 23 low of $15.87.

Mr. Hess refused to comment on rumors that United Cos. itself is on the block. (See related story on page 1.)

Investors also are convinced of strong consumer demand for home equity products, said one Massachusetts-based portfolio manager who has been eyeing the sector.

"Credit card companies are still losing accounts to home equity loans," he said. "Home equity products are here for good."

Robert Stata, senior vice president of originations at Cityscape Financial Corp., Elmsford, N.Y., agrees. "People are beginning to realize that we are beginning to sustain some sort of growth rate-that 20% is possible," he said.

Cityscape has not recovered as quickly as its peers. The company's stock hit $18 midday Tuesday, up from a low of $12.50 on April 21.

Big gainers in the market included FirstPlus and Money Store. The former traded at $34.125 at midday Tuesday, up from a low of $21.25 on May 2. In fact, FirstPlus, which makes loans for more than the homeowners' equity, gained almost $3 in Monday's trading alone. The increase raise speculation that it was being courted by an acquirer, but chief executive Dan Phillips denied the rumors.

Short-sellers, who have bet big in recent months that home equity stocks are on a long-term decline, may wind up the sector's biggest losers-and may drive prices even higher when they settle their accounts. More than 20% of United Cos. 24 million share float, or available shares of stock, is shorted, Mr. Hess reports. "When short-sellers start to cover themselves, there will be some serious upside," he said.

Deciding whether to invest in the sector is a company-by-company decision, added the portfolio manager-and prices have already rebounded so fast that the sector may no longer be a bargain, he added.

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