We recently compiled a list of the 10 Most Profitable Value Stocks To Invest In. In this article, we are going to take a look at where D.R. Horton, Inc. (NYSE:DHI) stands against the other most profitable value stocks to invest in.
Rotating Back to Value Sectors is the Better Option
Value investing is essentially focused on looking at stocks trading at a discount to their intrinsic value. Such stocks happen to be more mature, less volatile, and have strong fundamentals. 2024 has been significant for defensive and value stocks, especially considering that growth stocks have been trading at high valuations all year round. Analysts expect the Magnificent Seven to shed their valuation significantly and investors continue to remain cautious amid a turbulent market environment.
On October 22, Brian Mulberry, Zacks Investment Management client portfolio manager, joined Wealth! on Yahoo Finance to discuss his market thesis and share why he prefers value stocks over growth stocks under the current macroeconomic backdrop. The S&P 500, in terms of the broader market, is currently trading at 22 times its forward earnings. Speaking of the magnificent seven, their valuations are getting a bit “top-heavy” and have been consistently trading between the mid to high 30s, adds Mulberry.
READ ALSO 10 Stocks with Consistent Growth to Buy and 8 Most Undervalued Value Stocks To Buy According To Analysts.
On the flip side, looking at utilities’ earnings growth and forward P/E, these companies are trading at a FWD P/E of only 9 or 10. Additionally, within these sectors, multiple better-performing individual stocks are expected to post sustainable or “durable earnings growth.”
Mulberry suggests that investors can do much better at current valuation levels if they are rotating back to some traditional sectors and value stocks. He adds that the big banks also expect to report strong earnings and will continue to do so as the interest rates go down even further in 2025.
Value stocks not only have stronger fundamentals, but they also have legacy businesses with sustainable business models. With the current backdrop of uncertainty, many analysts and strategists alike believe that low-risk and value businesses are the best bets for investors. That said, let’s take a look at the 10 most profitable value stocks to invest in.
Our Methodology
To come up with the 10 most profitable value stocks to invest in we used the Finviz stock screener to identify stocks in value-oriented sectors like consumer staples, financials, energy, healthcare, and more, with forward PE ratios of less than 15, positive 10-year revenue growth rates, and positive trailing 12-month net income. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of Q2 2024 primarily and 10-year revenue growth rates, forward P/E, and TTM net income secondarily.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A construction team in a mining datacenter building work site with plans and equipment in hand.
D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 62
Forward P/E as of October 23, 2024: 12.4
10 Year Revenue Growth Rate: 17.5%
Trailing 12 Month (TTM) Net Income (June 30): $4.98 Billion
D.R. Horton, Inc. (NYSE:DHI) is a home construction company that was founded in 1978. It sells homes in more than 113 markets across 33 states in the United States. D.R. Horton made its first home in 1978 and by 2023 it had completed 1 million homes. The company also provides insurance services and mortgage services.
In the fiscal third quarter of 2024, D.R. Horton, Inc. (NYSE:DHI) logged $10 billion in consolidated revenues, up by 2%. Of this, its homebuilding segment accounted for most of the revenue in FQ3 2024, at $9.2 billion, up by 6%. For the nine months ended June 30, 2024, the company generated $26.8 billion in revenues, compared to $25 billion during the same period in fiscal year 2023. Similarly, for the nine months that ended June 30, 2024, home-building revenue increased by 9% to reach $25 billion, up from $22.9 billion during the same period in the fiscal year 2023. In the first nine months of FY 2024, the company closed more than 66,000 homes, up by 10% year-over-year.
D.R. Horton, Inc. (NYSE:DHI) is the largest builder in 3 of the top 5 housing markers in the United States, and in 52 of 118 markets in which they operated as of September 30, 2023. Its dominance in the housing industry is what contributes to its ranking on our list. DHI is also focused on enhancing operational efficiency by improving its sales pace, managing pricing for each community, optimizing land and home inventory levels, and increasing market share.
Based on its market share and strong financial performance, D.R. Horton, Inc. (NYSE:DHI) is one of the most profitable value stocks to invest in. The stock was held by 62 hedge funds at the close of Q2 2024. Analysts are also bullish on the stock and their median price target represents an upside of 15% from current levels.
Ariel Investments’ Ariel Global Fund stated the following regarding D.R. Horton, Inc. (NYSE:DHI) in its Q2 2024 investor letter:
“We also added positions in two of the largest homebuilders in the U.S., D.R. Horton, Inc. (NYSE:DHI) and Lennar Corporation. We think the U.S. housing market will continue to experience healthy demand due to substantial supply shortages resulting from a lack of construction following the global financial crisis. Against this favorable backdrop, we believe both companies are well-positioned to capitalize on recent affordability issues driven by rising housing prices, with their entry level, single-family-focused business models.”
Overall DHI ranks 3rd among the 10 most profitable value stocks to invest in. While we acknowledge the potential of DHI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DHI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.