In this article, we discuss 5 housing stocks to watch. If you want our comprehensive analysis of the housing market, go directly to Housing Market Predictions for 2022 and 10 Stocks to Watch.
5. Opendoor Technologies Inc. (NASDAQ:OPEN)
Number of Hedge Fund Holders: 41
Opendoor Technologies Inc. (NASDAQ:OPEN) is an online real estate company that primarily lists residential properties for sale and purchase. Opendoor Technologies Inc. (NASDAQ:OPEN) is a low margin, asset intensive business that can succeed in the current housing market.
Keefe Bruyette analyst Ryan Tomasello on February 14 initiated coverage of Opendoor Technologies Inc. (NASDAQ:OPEN) with a Market Perform rating and a $13 price target. The growing adoption of public real estate technology offers exposure to “various secular themes tethered to the digitization of real estate – the world’s largest asset class”, according to the analyst, who is bullish on technology adoption across the real estate industry. However, he said “idiosyncratic risks coupled with an unforgiving macro backdrop for high-growth, low-profitability stories warrant a selective approach”.
In its Q1 2022 guidance, posted on February 24, Opendoor Technologies Inc. (NASDAQ:OPEN) expects a revenue of $4.1 billion-$4.3 billion. In Q4 2021, its inventory balance of 17,009 homes, representing $6.1 billion in value, rose 1208% year-on-year.
Daniel Patrick Gibson’s Sylebra Capital Management held the largest position in Opendoor Technologies Inc. (NASDAQ:OPEN) as of Q4 2021, with 19.7 million shares worth $289 million. Overall, 41 hedge funds were bullish on the stock in the fourth quarter of 2021.
Here is what Baron Funds has to say about Opendoor Technologies Inc. (NASDAQ:OPEN) in its Q2 2021 investor letter:
“Following exceptionally strong share price performance in 2020 and early in 2021, the shares of Opendoor Technologies Inc. declined sharply in the last few months. Opendoor provides a digital platform for residential real estate that allows for the purchase and sale of homes on a mobile device. The company generated $2.5 billion of revenues last year, and management, who we have high regard for, believes there is a path to growing revenues to $50 billion over time!
At its recent price of $17 (versus a peak price of $36 in February), we believe the shares are attractively valued and offer compelling upside in the next few years.”
4. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 54
Headquartered in Arlington, Texas, D.R. Horton, Inc. (NYSE:DHI) is a homebuilding company that develops and sells residential homes in multiple markets under the names of D.R. Horton, America’s Builder, Express Homes, Emerald Homes, and Freedom Homes.
On February 2, D.R. Horton, Inc. (NYSE:DHI) declared a $0.225 per share quarterly dividend, in line with previous, which was paid on February 25. The homebuilder expects fiscal Q2 revenue of $7.3 billion-$7.7 billion, lower than the consensus estimate of $7.75 billion. D.R. Horton, Inc. (NYSE:DHI) expects home sales gross margin of 27.5% in the quarter ending March 30, 2022, compared to 27.4% in Q4 2021.
Barclays analyst Matthew Bouley lowered the price target on D.R. Horton, Inc. (NYSE:DHI) on February 3 to $125 from $140 and kept an Overweight rating on the shares. The analyst lifted fiscal 2022 earnings estimates 9% on stronger gross margins and better selling prices. He thinks D.R. Horton, Inc. (NYSE:DHI)’s “strong ramp” in production and available inventory listings should bode well for volumes and pricing power into the spring selling season, as demand continues to exceed supply.
Egerton Capital Limited is the biggest shareholder of D.R. Horton, Inc. (NYSE:DHI) as of Q4 2021, with 8.4 million shares worth $913.2 million. Overall, 54 hedge funds were bullish on the stock at the end of December 31.
3. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 59
Builders FirstSource, Inc. (NYSE:BLDR), an American manufacturer and supplier of building materials, is positioned to benefit from the housing market as supply chain constraints raise the prices of building components and construction companies grapple to increase market inventory.
Builders FirstSource, Inc. (NYSE:BLDR)’s above consensus earnings and revenue for the fourth quarter of 2021 are indicative of the company’s growing potential. Q4 revenue of $4.63 billion was up 23.5% year-over-year, driven by the merger with Building Materials Holding Corporation, double-digit organic growth, and commodity inflation.
On January 6, DA Davidson analyst Kurt Yinger raised the price target on Builders FirstSource, Inc. (NYSE:BLDR) to $100 from $93 and kept a Buy rating on the shares. The analyst cited the company’s completed acquisition of National Lumber, which adds to its “already leading national scale”.
Among the hedge funds tracked by Insider Monkey, 59 funds were bullish on Builders FirstSource, Inc. (NYSE:BLDR), up from 53 funds in the quarter prior. Coliseum Capital is the leading shareholder of the company, with a position worth roughly $403 million.
Here is what Merion Road Capital Management has to say about Builders FirstSource, Inc. (NYSE:BLDR) in its Q3 2021 investor letter:
“I added to our position in Builders FirstSource (“BLDR”) during the quarter. BLDR is the largest national supplier of structural building products and value-added components to the residential construction market. They have been active in consolidating the industry, most notably with the merger of BMC earlier this year. Like other distributors, BLDR benefits from scale advantages that afford them a robust product offering, enhanced purchasing power, and fixed cost leverage. They will continue to acquire smaller competitors and have announced 5 new deals so far this year.
I view the strategic benefit of these acquisitions in three different buckets. There are the core tuck-in acquisitions of facilities and customer lists that increase scale and geographic reach. An example would be the company’s May acquisition of John’s Lumber, a lumber and specialty product distributor serving the Detroit MSA, at 0.5x revenue. There are product acquisitions that leverage their platform to increase distribution and improve the product offering. For instance, last month BLDR announced the acquisition of California TrusFrame, a designer and manufacturer of prefabricated components like trusses and wall panels, at 1.3x revenue. And lastly BLDR has begun investing in software and services. In June they spent $450mm on the purchase of WTS Paradigm, a software company that addresses the complexity around building configuration, estimating, and manufacturing, at 9.0x revenue. By utilizing software in the planning process, WTS Paradigm cuts down on material and labor waste, ensures an optimal fit of product and design, and eases the contractor’s workload. BLDR has followed this up with a much smaller software acquisition in September.
BLDR is in the very early innings of their software investment, so it is difficult to pinpoint exactly how it will impact the company in the coming years. Management believes that there is a lot of low hanging fruit, pointing to a McKinsey study ranking the construction industry as second to last on overall digitization. If anyone has had any work done to their house, I am sure they can anecdotally attest to this. BLDR plans to leverage WTS Paradigm to increase internal productivity (i.e. improved estimating leading to fewer visits to the job site), cross-sell the software to existing clients, and drive greater adoption of value-added products. So thinking a few years out I think the goal would be to have higher margins on their commodity business, a greater mix of revenue coming from value added products, a stronger relationship with their customer, and an enhanced competitive advantage…” (Click here to see the full text)
2. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 68
The Home Depot, Inc. (NYSE:HD) is an American home improvement retailer that sells building materials, home improvement products, home decor, and lawn and garden products.
Bobby Griffin, an analyst from Raymond James, on February 23 lowered the price target on The Home Depot, Inc. (NYSE:HD) to $350 from $420 and kept an Outperform rating on the shares to better address the compressed valuation multiples for the sector. According to the analyst, The Home Depot, Inc. (NYSE:HD) delivered a “solid” Q4 with comps and EPS above the consensus view, and February to-date trends are off to a solid start.
On February 22, The Home Depot, Inc. (NYSE:HD) declared a $1.90 per share quarterly dividend, a 15.2% increase from its prior dividend of $1.65, which will be paid on March 24 to shareholders of record on March 10.
Among the hedge funds tracked by Insider Monkey, 68 funds were bullish on The Home Depot, Inc. (NYSE:HD), up from 58 funds in the prior quarter. Fisher Asset Management was the leading shareholder on that list with 7.8 million shares worth $3.2 billion.
Here is what Ensemble Capital Management has to say about The Home Depot, Inc. (NYSE:HD) in its Q4 2021 investor letter:
“On the more positive side, we saw notable performance contribution from Home Depot. In the midst of a housing shortage and rising home prices, Americans turned to home improvement projects with Home Depot’s startlingly fast growth in 2020 continuing throughout 2021. With each quarter that passed showing a continuation of strong growth rather than the slowdown that many investors expected, the stock led the S&P 500 for most of the year and turned in a heady 27% rally in the fourth quarter to close out the year. Notably, while Do It Yourself homeowners did indeed shop at Home Depot less than they did during record setting 2020, almost half of the company’s revenue comes from Pro contractors where strong growth continues.”
1. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 72
Lowe’s Companies, Inc. (NYSE:LOW) is an American home improvement retailer that sells appliances, home decor, paint, hardware, lighting, lumber and building materials, and tools. Lowe’s Companies, Inc. (NYSE:LOW)’s strong execution during the pandemic showed that its turnaround is truly working and that improvement can provide a boost now that the economy is steadily returning to normal.
On February 24, Wedbush analyst Seth Basham lowered the price target on Lowe’s Companies, Inc. (NYSE:LOW) to $240 from $260 and kept a Neutral rating on the shares. The analyst noted that Lowe’s Companies, Inc. (NYSE:LOW) reported Q4 results that were approximately in line with buy side expectations and ahead of consensus. Despite prospects for stronger operating margin expansion and EPS growth fueled primarily by productivity initiatives that continue to gain traction, the analyst remains on the sidelines given a less optimistic sector outlook for 2022.
According to the Q4 database of Insider Monkey, 72 hedge funds reported owning stakes in Lowe’s Companies, Inc. (NYSE:LOW), valued at $6.8 billion, as compared to 60 funds the previous quarter holding stakes worth $5 billion. Bill Ackman’s Pershing Square is the biggest stakeholder of the company, with 10.2 million shares worth $2.6 billion.
Here is what Pershing Square Capital Management has to say about Lowe’s Companies, Inc. (NYSE:LOW) in its Q4 2021 investor letter:
“Lowe’s is a high-quality business with significant long-term earnings growth potential
Supportive macroeconomic backdrop
-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing market
Positioned to grow EPS largely independent of market conditions
-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022
Multi-year business transformation with substantial earnings upside
-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.
Lowe’s continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”
You can also take a look at 10 Smart Home Technology Stocks To Buy Today and 10 Stocks in Focus After Posting Their Earnings Reports.
