In this article, we discuss the 14 best housing stocks to buy according to hedge funds. To skip the detailed analysis of the housing market, go directly to the 5 Best Housing Stocks To Buy According to Hedge Funds.
For the first time since July 2022, the median home prices in all the US states have either risen or stayed the same in the four weeks ending April 28, as reported by Redfin Corporation (NASDAQ:RDFN) on May 2. Home prices are rising despite mortgage rates going above 7% as people locked in at lower mortgage rates are reluctant to sell their homes, creating supply shortages. Moreover, on April 19, Redfin Corporation (NASDAQ:RDFN) reported that luxury homes have reached record prices with a median price of $1.225 million. In Q1, luxury home sales increased by 2% despite the prices rising 9% and total supply increasing by 13% year-over-year. Compared to that, the prices of nonluxury homes increased by 4.6% year-over-year and its sales were down 4%.
Luxury Home Builder Expanding Further
Toll Brothers, Inc. (NYSE:TOL) is one of the largest builders of luxury homes in the United States. On April 25, the company announced its new project, Griffith Lakes – Waterstone Collection in Charlotte, North Carolina. The construction of the 52 new luxury homes is set to start in the spring of 2024 while sales will begin in the summer of this year. It reported its first-quarter earnings on February 20 and posted an EPS of $2.25, which outperformed the estimates by $0.47. The company’s revenue grew nearly 10% year-over-year to $1.95 billion. In the second quarter, Toll Brothers, Inc. (NYSE:TOL) expects deliveries of 2,400 to 2,500 units averaging at $1 million to $1.01 million per home. For the full year, the company expects to make 10,000 to 10,500 deliveries at $940,000 to $960,000 per home.
Investment management firm Baron Funds appreciated the performance of Toll Brothers, Inc. (NYSE:TOL) in its first quarter 2024 investor letter. The firm said that it met with its CEO, Doug Yearley, the CEO of D.R. Horton, Inc. (NYSE:DHI), Paul Romanowski, and Lennar Corporation’s (NYSE:LEN) CEO Stuart Miller It believes that these companies are “well positioned to generate strong long-term shareholder returns.”
Toll Brothers, Inc.’s (NYSE:TOL) CEO made the following comments at the company’s Q1 2024 earnings call:
“At first quarter end, we controlled approximately 70,400 lots, 49% of which were optioned. This land position allows us to be highly selective and disciplined as we assess new land opportunities. We believe we have a competitive advantage acquiring land at the corner of Main and Main, where very few of the big well-capitalized publics and privates play. Our main competition for this land tends to be the smaller local and regional builders who are not as well capitalized. Our balance sheet is very healthy with ample liquidity, low net debt and no significant near-term debt maturities. We also continue to expect strong cash flow generation from operations this year. In addition, as I mentioned earlier, we received $181 million in cash from a land sale at the start of our second quarter.
As a result, we are increasing the amount we are budgeting for fiscal 2024 share repurchases from $400 million to $500 million. Longer term, we continue to expect buybacks and dividends to remain an important part of our capital allocation priorities. With that, I will turn it over to Marty.”
Resilience Amid High Mortgage Rates
D.R. Horton, Inc. (NYSE:DHI) and Lennar Corporation (NYSE:LEN) are the second and third-largest construction companies in the world. Despite the challenges in the housing market, these companies have remained resilient and their managements are quite optimistic about their long-term goals. D.R. Horton, Inc. (NYSE:DHI) reported its second-quarter earnings on April 18, posting an EPS of $3.52, which exceeded expectations by $0.47. The company’s revenue increased by 14.3% year-over-year to $9.11 billion. The company saw a 15% increase in homes closed and 14% in net sales orders. D.R. Horton, Inc. (NYSE:DHI) also updated its FY24 guidance, forecasting consolidated revenues of $36.7 billion to $37.7 billion. The market consensus is near the low point of its guidance at $36.75 billion. The company also plans to repurchase $1.6 billion of its outstanding shares. D.R. Horton, Inc.’s (NYSE:DHI) senior vice president (communications), Jessica Hansen made the following comments at its latest earnings call:
“For the third quarter, we currently expect to generate consolidated revenues of $9.5 billion to $9.7 billion and homes closed by our homebuilding operations to be in the range of 23,500 homes to 24,000 homes. We expect our home sales gross margin in the third quarter to be approximately 23% to 23.5% and homebuilding SG&A as a percentage of revenues to be approximately 7%. We anticipate a financial services pre-tax profit margin of around 30% to 35% in the third quarter, and we expect our quarterly income tax rate to be approximately 24%. Our full-year fiscal 2024 revenue, pricing, and margins will be affected by market conditions and changes in mortgage rates in addition to our efforts to meet demand by balancing sales pace and price to maximize returns.”
Lennar Corporation (NYSE:LEN) announced its Q1 2024 earnings on March 13 and posted an EPS of $2.57, outperforming the estimates by $0.37 and the company generated a revenue of $7.3, up 12.5% year-over-year. The company repurchased $506 million worth of shares in the quarter and increased its current stock repurchase program by $5 billion. CEO Stuart Miller made the following comments at the company’s Q1 earnings call:
“While market conditions have remained challenging, we have consistently learned and found ways to address market needs. We know that demand is strong and there is a chronic housing supply shortage that needs to be filled. We will continue to drive production to meet the housing shortage that we know persists across markets. With that said, as interest rates subside and normalize and if the Fed is going to begin to actually cut rates, we believe that pent-up demand will be activated, and we will be well positioned and well prepared.
If not, we will continue to produce volume and increase market share. To date, we have seen overall market conditions remain generally constructive for the industry. Even though higher interest rates have remained sticky, strong pent-up demand has found ways to access the housing market. Given consistent execution, we are extremely well-positioned for even greater successes as strong demand for affordable offering continues to seek short supply.”
While the high mortgage rates are a cause for concern for the housing industry, the supply shortage still makes a bullish case for it. Some of the best housing stocks include D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and Zillow Group, Inc. (NASDAQ:Z).
14 Best Housing Stocks To Buy According to Hedge Funds
Our Methodology
For this article, we used the Yahoo Finance stock screener to create a list of 21 home-building and other residential real estate companies. We narrowed down our list to 14 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Best Housing Stocks To Buy According to Hedge Funds
14. AvalonBay Communities, Inc. (NYSE:AVB)
Number of Hedge Fund Holders: 29
AvalonBay Communities, Inc. (NYSE:AVB) is an equity real estate investment trust that is engaged in the development, acquisition, and management of apartment communities.
On April 29, Piper Sandler raised the price target on AvalonBay Communities, Inc. (NYSE:AVB) to $230 from $207 and kept an Overweight rating on the shares.
29 hedge funds had investments in AvalonBay Communities, Inc. (NYSE:AVB) with positions worth $234.703 million. AEW Capital Management is the biggest shareholder of the company and has a position worth $144.12 million, as of the fourth quarter of 2023.
AvalonBay Communities, Inc. (NYSE:AVB) has attracted the attention of institutional investors, along with D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and Zillow Group, Inc. (NASDAQ:Z).
Baron Real Estate Income Fund commented on AvalonBay Communities, Inc. (NYSE:AVB) in its third quarter 2023 investor letter:
“In the third quarter, we maintained our exposure to apartment REIT AvalonBay Communities, Inc. (NYSE:AVB). We believe public valuations remain discounted relative to the private market. Tenant demand remains healthy and rent growth has modestly improved since the first quarter of 2023. Rental apartments continue to benefit from the current homeownership affordability challenges. Multi-family REITs provide partial inflation protection to offset rising costs due to leases that can be reset at higher rents, in some cases, annually. We continue to closely monitor new supply deliveries and job losses in key geographic markets.”
13. Meritage Homes Corporation (NYSE:MTH)
Number of Hedge Fund Holders: 29
Meritage Homes Corporation (NYSE:MTH) is an Arizona-based company that designs and builds single-family attached and detached homes in the U.S. Meritage Homes Corporation (NYSE:MTH) was part of 29 hedge funds’ portfolios in Q4 of 2023 with a total stake value of $600.944 million. Greenhaven Associates is the most dominant shareholder in the company and has a position worth $144.027 million as of Q4 of 2023.
On April 24, Meritage Homes Corporation (NYSE:MTH) announced its first-quarter earnings. The Q1 GAAP EPS reported was $5.06, which beat the estimates by $1.52. The revenue climbed 14.8% year-over-year to $1.47 billion and beat the estimates by $190 million.
12. Taylor Morrison Home Corporation (NYSE:TMHC)
Number of Hedge Fund Holders: 30
Taylor Morrison Home Corporation (NYSE:TMHC) is engaged in designing, building, and selling single and multi-family detached and attached homes. The company is also involved in the development of lifestyle and master-planned communities. Taylor Morrison Home Corporation (NYSE:TMHC) ranks 12th on our list of the best housing stocks to buy according to hedge funds.
On May 1, RBC Capital analyst Mike Dahl raised the price target on Taylor Morrison Home Corporation (NYSE:TMHC) to $63 from $61 and kept an Outperform rating on the shares.
According to our database, 30 hedge funds held stakes in Taylor Morrison Home Corporation (NYSE:TMHC) in the fourth quarter of 2023, with positions worth $383.265 million. With 1.55 million shares of the company, valued at $82.75 million, AQR Capital Management is the top investor of the company, as of December 31, 2023.
11. Equity Residential (NYSE:EQR)
Number of Hedge Fund Holders: 33
Equity Residential (NYSE:EQR) acquires, develops, and manages residential properties. The company has ownership or investment in 299 properties, consisting of 79,688 apartment units.
On April 23, Equity Residential (NYSE:EQR) reported first-quarter earnings. The Q1 funds from operations (FFO) beat the estimates by $0.02 and were $0.93. The revenue surpassed the estimates by $2.74 million and grew 3.6% year-over-year to $730.82 million.
In the fourth quarter of 2023, 33 hedge funds had investments in Equity Residential (NYSE:EQR), with total positions worth $767.248 million. First Eagle Investment Management has increased its stake in the company by 6% to 9.3 million shares worth $570.333 million and is the most prominent shareholder, as of the fourth quarter of 2023.
Baron Real Estate Fund stated the following regarding Equity Residential (NYSE:EQR) in its fourth quarter 2023 investor letter:
“In the most recent quarter, we re-acquired shares in Equity Residential (NYSE:EQR), the largest U.S. multi-family REIT. The company has assembled an excellent portfolio of Class A apartment buildings located in high barrier-to-entry coastal markets with favorable long-term demographic trends and muted overall supply growth. We believe the company is also well positioned to benefit from the affordability advantages of renting versus home ownership, annual leases that provide the potential for partial inflation protection, and its low levered balance sheet, which positions the company to take advantage of acquisition opportunities.
In our opinion, Equity Residential’s shares are attractively valued relative to private market values and the company owns and operates excellent and relevant real estate that should perform well, long term.”
10. Camden Property Trust (NYSE:CPT)
Number of Hedge Fund Holders: 34
Camden Property Trust (NYSE:CPT) owns, manages, develops, redevelops, acquires, and constructs multifamily apartment communities. Camden Property Trust (NYSE:CPT) is listed among our best housing stocks to buy according to hedge funds.
Over the last five years, Camden Property Trust’s (NYSE:CPT) sales grew 10.13% and the company witnessed an EPS growth of 17.88% during the same period.
Camden Property Trust (NYSE:CPT) was held by 34 hedge funds in Q4 of 2023 and the stakes amounted to $711.373 million. As of December 31, 2023, Long Pond Capital is the largest shareholder of the company with a position worth $199.51 million, representing 16.04% of the portfolio.
9. Sun Communities, Inc. (NYSE:SUI)
Number of Hedge Fund Holders: 36
Sun Communities, Inc. (NYSE:SUI) is a fully integrated real estate investment trust that is engaged in the acquisition, operation, development, and expansion of manufactured housing (MH). Additionally, the company provides services like marketing, leasing, and selling for new and pre-owned houses.
10 Wall Street analysts have covered Sun Communities, Inc. (NYSE:SUI), and 6 keep a Buy-equivalent rating on the stock. As of May 2, the average price target of $139.30 has an upside of 19.43% from the last price of $116.64.
At a stake value of $633.824 million, 36 hedge funds held positions in Sun Communities, Inc. (NYSE:SUI). As of the fourth quarter of 2023, Waratah Capital Advisors is the biggest shareholder in the company and has a position worth over $122 million.
Third Avenue Management stated the following regarding Sun Communities, Inc. (NYSE:SUI) in its fourth quarter 2023 investor letter:
“Sun Communities, Inc. (NYSE:SUI) (a U.S.- based REIT invested in manufactured housing, RV resorts, and marinas) sold its 10% stake in separately listed Ingenia Communities (an Australian-based owner of active-adult communities and RV parks), while repatriating the capital and announcing the intention to sell non-core properties within North America. These moves support a “return to core” strategy as the company further streamlines to close the discount to Net-Asset Value (“NAV”) and its closest peer.
The Fund participated in several of these developments, primarily by (i) increasing its position in Ingenia Communities alongside the Sun Communities offering and (ii) agreeing to engage in the Five Point exchange offer, which is expected to close in January 2024. The Fund also increased its position in Sun Communities during the period and trimmed back certain holdings for portfolio management purposes.”
8. American Homes 4 Rent (NYSE:AMH)
Number of Hedge Fund Holders: 36
American Homes 4 Rent (NYSE:AMH) is a real estate investment trust that owns, operates, and develops single-family rental homes. In Q4 of 2023, 36 hedge funds held stakes in American Homes 4 Rent (NYSE:AMH), with positions worth $699.255 million. As of December 31, 2023, Citadel Investment Group is the most significant shareholder in the company with a position worth $158.96 million.
The company is among the best housing stocks to buy according to hedge funds. Over the last five years, American Homes 4 Rent (NYSE:AMH) has gained 49.92%, and the company has recorded an EPS growth of 66.18% over the past five years, as of May 2.
Baron Funds mentioned American Homes 4 Rent (NYSE:AMH) in its Q3 2023 investor letter:
“Following strong second quarter results, we modestly increased our investments in single-family rental REITs American Homes 4 Rent (NYSE:AMH). Demand conditions for rental homes are attractive due to the sharp decline in home affordability; the propensity to rent in order to avoid mortgage down payments, avoid higher monthly mortgage costs, and maintain flexibility; and the stronger demand for home rentals in suburbs rather than apartment rentals in cities. Rising construction costs are limiting the supply of single-family rental homes in the U.S. housing market. This limited inventory combined with strong demand is leading to robust rent growth.
American Homes 4 Rent have an opportunity to partially offset the impact of inflation given that their in-place annual leases are significantly below market rents. Valuations are compelling at mid-5% capitalization rates, and we believe the shares are currently valued at a discount to our assessment of net asset value. We remain mindful that expense headwinds and slower top-line growth could weigh on growth later in 2023 and 2024. We will continue to closely monitor business developments and will adjust our exposures accordingly.”
7. PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Holders: 38
PulteGroup, Inc. (NYSE:PHM) is involved in the design, acquisition, development, and construction of land and housing properties. It operates through various brands, including Centex, Pulte Homes, Del Webb, and DiVosta Homes, among others.
On April 23, PulteGroup, Inc. (NYSE:PHM) reported its first-quarter earnings. The Q1 GAAP EPS was $3.10 and beat the market estimates by $0.74. The revenue jumped 10.4% year-over-year to $3.95 billion and topped the estimates by $360 million. PulteGroup, Inc.’s (NYSE:PHM) home sale revenues were up 10%, and net new orders increased 14% during the quarter.
In the quarter, 38 hedge funds held positions in PulteGroup, Inc. (NYSE:PHM) and their stakes amounted to $1.56 billion. As of December 31, 2023, Greenhaven Associates is the most dominant shareholder in the company and has a position worth $591.07 million.
6. KE Holdings Inc. (NYSE:BEKE)
Number of Hedge Fund Holders: 39
KE Holdings Inc. (NYSE:BEKE) runs an integrated online and offline platform for housing transactions and services in China. The company operates the Beike platform, Lianjia store, Agent Cooperation Network, and Deyou brand.
KE Holdings Inc. (NYSE:BEKE) has a consensus Buy rating among 5 analysts, and its average price target of $21.82 implies an upside of 29.57% from the last price of $16.84, as of May 2.
In the fourth quarter of 2023, 39 hedge funds held positions in KE Holdings Inc. (NYSE:BEKE) worth approximately $1.67 billion. As of December 31, 2023, Hillhouse Capital Management is the top investor in the company and has a position worth $473.730 million.
KE Holdings Inc. (NYSE:BEKE) is among the best housing stocks to buy according to hedge funds, along with D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and Zillow Group, Inc. (NASDAQ:Z).
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Disclosure. None. 14 Best Housing Stocks To Buy According to Hedge Funds is originally published on Insider Monke