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.
4. Simon Property Group, Inc. (NYSE:SPG)
Number of Hedge Fund Holders: 45
Simon Property Group, Inc. (NYSE:SPG) is engaged in the business of retail real estate and is the largest mall operator globally. With headquarters in Indianapolis, the company has a stake in 232 properties across the globe and employs 5500 people in the U.S. The company has several acquisitions and expansion plans in the pipeline and acquired many new malls in its latest aggressive expansion strategy.
On October 11, 2022, Simon Property Group, Inc. (NYSE:SPG) announced a strategic partnership with Jamestown, which will close after regulatory approvals at the end of 2022. After the commencement of the partnership, Simon Property Group, Inc. (NYSE:SPG) will acquire a 50% stake in Jamestown. The company’s stock is down 36.9% as of October 24, 2022, and currently is offering an excellent dividend yield of 6.93%.
Here’s what Baron Funds said about Simon Property Group, Inc. (NYSE:SPG) in its Q1 2022 investor letter:
Following a share price gain of more than 97% in 2021, we recently trimmed the Fund’s holdings in Simon Property Group, Inc. (NYSE:SPG), the largest and premier mall operator in the U.S. Though we are also tempered by the expectation for modest earnings growth in 2022, we remain optimistic about the company’s long-term prospects. Simon owns A-quality malls in A-quality geographic locations. We expect Simon to benefit from the ongoing economic recovery and believe management is well positioned to acquire real estate assets given its strong balance sheet and low cost of capital.
3. Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Holders: 47
Lennar Corporation (NYSE:LEN) is a homebuilding firm that runs multiple segments under its brand, including Homebuilding Central, Homebuilding East, Homebuilding Texas, Multifamily, financial services, and Lennar Other. The homebuilding business caters to single-family houses, residential land, and multifamily rental properties. The financial segment handles mortgage financing, closing services for clients, and title insurance.
Lennar Corporation (NYSE:LEN) is trading at an attractive forward P/E of 5.69x as of October 24, 2022, in comparison to the sector median of 12.82x. Despite the slowdown in the housing market, the company continues to deliver strong margins due to its dynamic pricing model and is relatively better placed than other housing stocks to pull through the correction in the housing market. Moreover, Lennar Corporation (NYSE:LEN) offers a dividend yield of 2.04% at the current price level.
On October 4, 2022, Aaron Hecht, an analyst at JMP Securities, reduced his price target on Lennar Corporation (NYSE:LEN) to $115. The analyst currently has an Outperform rating on the stock. The analyst stated that the company performed well in Q3 as the homebuilding segment continued to post good results, but there will be some pressure on the business as housing affordability deteriorates in the future.
At the end of Q2 2022, Greenhaven Associates held the highest stake in Lennar Corporation (NYSE:LEN), with a holding of 9,320,767 shares of the company, constituting 14.19% of the fund’s portfolio. According to Insider Monkey database, 47 hedge funds owned stakes in the company at the end of the June quarter.
2. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 53
Lowe’s Companies, Inc. (NYSE:LOW) is a specialty retailer offering a wide range of home makeover products. Its product line entails construction materials, decorative and remodeling products along with home improvement items such as carpets, lawn and gardening, electrical, plumbing, tools, kitchen, and other home furnishings. The company operates a retail network comprising of approximately 1,971 outlets countrywide. Lowe’s Companies Inc. has headquarters in Mooresville, North Carolina.
On October 3, 2022, Jonathan Matuszewski, an analyst at Jefferies, increased his price target on Lowe’s Companies, Inc. (NYSE:LOW) to $259. The analyst has a Buy rating on the company and believes that the company’s home maintenance and emergency repair services provide protection against downside risk, which is not currently appreciated by the market.
Lowe’s has a demonstrated record of solid operational performance in the past. The company has generated $3.23 in value for every dollar retained by the company from 2015 to 2019. Lowe’s Companies, Inc. (NYSE:LOW) is also offering a dividend yield of 2.30% to investors. The company is currently available at a discount to its intrinsic value, which makes it a good buy at the moment.
Here is what Pershing Square Holdings specifically said about Lowe’s Companies, Inc. (NYSE:LOW) in its Q2 2022 investor letter:
Lowe’s Companies, Inc. (NYSE:LOW) ‘s is a high-quality business with significant long-term earnings growth potential underpinned by a superb management team that is successfully executing a multi-faceted business transformation.
COVID-19 was a transformational event for the U.S. housing market, causing homeowners to invest significantly in their homes as they shifted nearly all their daily activities to the home environment, including work, school, and leisure. The increased use of the home during COVID, in turn, increased the need for repair, maintenance and remodel activity, which significantly benefited Lowe’s same-store sales. As consumers return to spending more time and money on out-of-the home activities the near-term demand for certain Do-It-Yourself (“DIY”) categories has decreased. Moderation in DIY demand combined with increased mortgage rates and decreased housing affordability has caused many market participants to become concerned that the home improvement industry may give up a significant part of their COVID pandemic sales gains.
While we expect that there will be some near-term volatility and continued moderation of DIY demand, growth remains strong for projects requiring professional installation (the “Pro” business) due to a substantial backlog of projects undertaken during COVID, which should support industry growth in the near-term. In addition, we believe the medium[1]term growth outlook for the home improvement industry remains strong as demand is likely to normalize at a materially higher level as compared to the pre-COVID era. For the decade prior to COVID, home improvement industry sales were notably depressed relative to their long-term averages as a percentage of overall consumer spend and GDP and have only now returned to their longer-term historical levels. Moreover, we believe COVID has permanently renewed consumers’ focus, appreciation, and utilization of their homes, which combined with higher home equity values, strong consumer balance sheets, low levels of home inventory for sale and an aging housing stock that requires an increasing level of maintenance, will likely result in a structurally higher level of ongoing home industry spending in the future. In the most recent quarter demand strengthened throughout the quarter as DIY consumers returned from summer vacations and focused on less seasonal home improvement projects… (Click here to read the full text)
1. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 80
Headquartered in Atlanta, Georgia, The Home Depot, Inc. (NYSE:HD) is the world’s most prominent home renovation retailer, operating 2300 retail outlets across the U.S, Canada, and Mexico. Its offerings include an array of building materials, hardware supplies, electrical products, various interior and exterior decoration products, indoor and outdoor gardening items alongside supplementary services such as installation services and home delivery.
The Home Depot, Inc. (NYSE:HD) stock is down 32.5% YTD as of October 24, 2022, amidst a broader market sell-off. However, the company’s financial results have been resilient despite the deteriorating housing affordability, and recently the management of the company reaffirmed its full-year revenue guidance. The company is currently trading at 16.29x as of October 24, 2022, which is well below its historical average, and presents a good buying opportunity for long-term investors. Moreover, The Home Depot, Inc. (NYSE:HD) offers a dividend yield of 2.76% at the current price level.
Jonathan Matuszewski, an analyst at Jefferies, currently has a Buy rating on The Home Depot, Inc. (NYSE:HD). On October 3, 2022, the analyst increased his price target on the company to $394.
Here is what Diamond Hill Capital specifically said about The Home Depot, Inc. (NYSE:HD) in its Q2 2022 investor letter:
The Home Depot, Inc. (NYSE:HD) is a high-quality operator in the home improvement industry. Macroeconomic concerns, particularly the rise in mortgage rates, caused the share price to pull back and trade at a greater discount to our estimate of intrinsic value. We believe Home Depot is well positioned to continue gaining share due to its premium real estate locations, strong operations and recent investments in its supply chain. We like Home Depot’s exposure to the professional customer and believe in its ability to take market share in this segment as we believe home improvement spending has the potential to remain resilient in upcoming years.
According to Insider Monkey database, 80 hedge funds held a stake in The Home Depot, Inc. (NYSE:HD) at the end of the second quarter ending June 2022. Fisher Asset Management was the leading stakeholder of the company, with an investment value of over $2 billion in the company.
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