In this piece, we will take a look at the five best housing stocks for you to buy. If you want an industry primer and more stocks, then head on over to 10 Best Housing Stocks to Buy Now.
5. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 29
Toll Brothers, Inc. (NYSE:TOL) is an American company that builds and sells luxury homes in America. Additionally, the company also helps buyers arrange to finance their purchases. It is headquartered in Fort Washington, Pennsylvania.
Toll Brothers, Inc. (NYSE:TOL) has a strong customer base that is in the upper echelon of homebuyers, as the average purchase price for a house built by the company is $1 million. This insulates the company against the effects of an economic downturn. Additionally, the firm operates in markets that have high barriers to entry, such as Los Angeles and San Francisco. Toll Brothers, Inc. (NYSE:TOL) is also aggressively targeting the rental market, having spent $2.3 billion in the segment since 2020. Finally, the firm also pays out a 20 cent dividend for a 1.77% yield.
BofA kept a $49 price target for the company in August 2022, stating that it has a high order backlog and markets are slowing in this economic environment. 29 of the 895 hedge funds polled by Insider Monkey during this year’s second quarter had bought Toll Brothers, Inc. (NYSE:TOL)’s shares.
Toll Brothers, Inc. (NYSE:TOL)’s largest investor is Edgar Wachenheim’s Greenhaven Associates which owns 5.3 million shares that are worth $238 million.
4. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 44
D.R. Horton, Inc. (NYSE:DHI) is an American homebuilder that operates in several regions of the North American country. Its residential home sales division operates in 31 American states and the company sells several kinds of houses such as detached and attached homes.
D.R. Horton, Inc. (NYSE:DHI) managed to keep a firm grip on its cancellations during its third fiscal quarter, as despite demand slowing down, it reported that its cancellations were being resold. The company has a large market at its disposal since the average selling price for most of its homes is below $350,000 – lower than the national average. This has also enabled D.R. Horton, Inc. (NYSE:DHI) to grow its market share from 9% in 2009 to 11% by the end of last year. Finally, the company has nearly doubled its lot count to 598,200 as of late. D.R. Horton, Inc. (NYSE:DHI) also pays a 23 cent dividend for a 1.26% yield.
Insider Monkey studied 895 hedge fund portfolios for this year’s second quarter to discover that 44 had held a stake in D.R. Horton, Inc. (NYSE:DHI).
Out of these, John Armitage’s Egerton Capital Limited is D.R. Horton, Inc. (NYSE:DHI)’s largest investor. It owns 7.6 million shares that are worth $504 million.
Palm Valley Capital Management mentioned the company in its Q2 2022 investor letter. Here is what the fund said:
“Vidler Water was acquired by homebuilder D.R. Horton (NYSE:DHI) during the second quarter for $15.75 per share, a modest 19% premium to the 90-day volume weighted average price. D.R. Horton can use Vidler’s water rights to satisfy government requirements to have water resources available before it breaks ground on new housing developments in Nevada. The takeover price was below our valuation, but D.R. Horton was the only real buyer who stepped up to the plate for Vidler’s assets. The deal appears to have leaked early, since the stock surged in the weeks before the announcement.”
3. Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Holders: 47
Lennar Corporation (NYSE:LEN) is a homebuilder that sells several kinds of houses such as single family attached and detached homes. Additionally, it also develops and sells residential land and multifamily rental properties. The firm is headquartered in Miami, Florida, United States.
Lennar Corporation (NYSE:LEN) was one of the few housing companies that saw its net income grow during its second quarter, as bottom line profits surged by 59% at a time when the market was in a downturn. During the same time, the firm increased its deliveries by 14% and backlog by 16% – both indicating the resilience of its business model in a tough macro environment. At the same time, the firm’s balance sheet grew stronger as its net debt to capital declined to 13% from a high of 32% in 2019. Lennar Corporation (NYSE:LEN) also pays a 38 cent dividend for a 1.90% yield.
Lennar Corporation (NYSE:LEN)’s share price target was kept at $82 by BofA in August 2022 as the bank highlighted that the company’s strong exposure in several markets is partially offset by a strong position in Florida. 47 of the 895 hedge funds part of Insider Monkey’s Q2 2022 survey had bought the company’s shares.
Lennar Corporation (NYSE:LEN)’s largest investor is Edgar Wachenheim’s Greenhaven Associates which owns 9.3 million shares that are worth $657 million.
2. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 53
Builders FirstSource, Inc. (NYSE:BLDR) is an upstream homebuilding company that provides building materials and construction services to professional homebuilders. The firm is headquartered in Dallas, Texas, United States of America.
A key factor about Builders FirstSource, Inc. (NYSE:BLDR) is the fact that the firm has an outstanding return on capital invested (ROIC) of 43% – which is significantly higher than its weighted average cost of capital (WACC) and indicates that the firm is a worthy investment. Additionally, its consensus share price target is $97.21, for a significant upside over the current share price of $61.
Stifel raised Builders FirstSource, Inc. (NYSE:BLDR)’s share price target to $92 from 87 in August 2022 as it highlighted that the firm will generate significant cash flow and use it for acquisitions. Insider Monkey’s 895 hedge fund survey for this year’s June quarter saw 53 investors in the company.
Builders FirstSource, Inc. (NYSE:BLDR)’s largest investor in our database is Christopher Shackelton and Adam Gray’s Coliseum Capital which has a $347 million stake that comes through 6.4 million shares.
Black Bear Value Partners mentioned the company in its Q1 2022 investor letter. Here is what the fund said:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”
1. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 53
Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement company that is one of the oldest of its kind as it was set up in 1921 and is headquartered in Mooresville, North Carolina, the United States. The firm sells a variety of home improvement products such as flooring, hardwood, millwork, paint, and plumbing.
Lowe’s Companies, Inc. (NYSE:LOW) is the second largest home improvement products provider in the world and it has close to 2,000 stores in the U.S. and Canada. The firm’s forward Price to Earnings ratio sits at 14.2x, which is below its historic P/E ratio of 20.8 and indicates that the shares are at a discount. Lowe’s Companies, Inc. (NYSE:LOW) has also grown its dividends at a 19% CAGR over the past five years and investors in the stock are rewarded by a healthy 26% payout ratio. As of the moment, the company pays a $1.05 dividend per share for a 2.12% yield.
Truist raised Lowe’s Companies, Inc. (NYSE:LOW)’s share price target to $263 from $237 in August 2022 as it shared that the firm’s sales and profitability are growing. 53 of the 895 hedge funds part of Insider Monkey’s 895 hedge fund survey for Q2 2022 had held a stake in the company.
Lowe’s Companies, Inc. (NYSE:LOW)’s largest investor is Bill Ackman’s Pershing Square which owns 10 million shares that are worth $1.7 billion.
Disclosure: None. You can also take a look at Top 10 Stock Picks of Mark Gallogly’s Centerbridge Partners and Top 10 Technology Stocks to Buy According to Billionaire Cliff Asness.
