In this article, we will discuss the 5 Best Housing Stocks To Buy Now. If you want to read our analysis of the housing market, you can head on to the 13 Best Housing Stocks To Buy Now.
5. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 44
Headquartered in Arlington, Texas, D.R. Horton, Inc. (NYSE:DHI) is a homebuilder involved in land acquisition and development and construction and sale of residential properties. The firm’s operation footprint extends over 102 markets in 32 states in the U.S. The company’s business segments include homebuilding and financial services.
D.R. Horton, Inc. (NYSE:DHI) is the biggest homebuilder in the United States, with a $24.2 billion market cap and $27.7 billion in revenue (Fiscal Year 21). The company is currently trading at an attractive valuation of 5.41x forward P/E as compared to the sector median of 12.01x as of October 24, 2022. This presents a good opportunity for investors to get in at a solid company with a strong history of performance at low price levels. Additionally, the company is also currently offering a dividend yield of 1.29% to investors.
On October 10, 2022, Jay McCanless, an analyst at Wedbush, reduced his price target on D.R. Horton, Inc. (NYSE:DHI) to $83. The analyst has an Outperform rating on the shares. The analyst believes that the company will report lower earnings over the coming few quarters as mortgage demand slows down.
Here is what Third Avenue Management specifically said about D.R. Horton, Inc. (NYSE:DHI) in its Q2 2022 investor letter:
D.R. Horton, Inc. (NYSE:DHI) is the largest homebuilder in the U.S. by volume (the company sold more than 90k homes in the past year) with a well-recognized focus on delivering quality product at the entry-level price point (its average selling price is less than $400k) and market-leading positions in key Sunbelt markets.
While the near-term outlook for DR Horton remains uncertain given the adjustments occurring in the U.S. residential markets, the medium-to-long-term prospects for volume-based homebuilders with super-strong balance sheets and scale advantages continue to be promising in Fund Management’s view. More specifically, (i) residential inventories remain around record-low levels in most major markets when gauged by aggregate units available (see chart below), (ii) demand for single-family residences seem to have multiple secular drivers as the largest generation in U.S. history (the “millennial cohort”) enters its prime home buying years and desires more space not only due to “life events” but also “remote” and “hybrid” working arrangements, and (iii) significant inflation in rental rates for multi-family units in urban areas has left the rent-toown proposition for single-family homes in suburban areas in a compelling range (particularly in the Sunbelt region which is experiencing outsized job growth and wage growth relative to broader national figures).
In Fund Management’s view, the two industry participants that seem most likely to take part in this shift include DR Horton and Lennar Corp. (a long-held position in the Fund). In conjunction, these two “blue-chip builders” now account for approximately 10% of the Fund’s capital, as well as roughly one out of every five new homes built in the Sunbelt. They would also qualify under Third Avenue Founder Marty Whitman’s “Safe and Cheap” maxim as both companies are nearly “net-cash” (i.e., more cash than debt) with common stocks trading at less than five times trailing earnings, on average.
