We recently compiled a list of the 10 Best Home Builder Stocks To Buy Now. In this article, we are going to take a look at where Meritage Homes Corporation (NYSE:MTH) stands against the other home builder stocks.
Lowering Mortgages: A Sigh of Relief for the Housing Market?
Mortgage rates have dropped for six straight weeks to their lowest since February 2023 as the 30-year fixed-rate mortgage averaged 6.20% in the week ended September 12. While many experts believe that these rates will be in the 5% range by 2025, the gesture seems to be motivating for all those looking to buy a house but have long been priced out of the market. In an interview with CNBC, Bess Freedman, CEO of Brown Harris Stevens, mentioned how the anticipated Fed rate cut could be beneficial for the housing market but its effect would unfold gradually. The long-awaited move is also likely to help sellers escape the mortgage lock-in effect and finally put their houses on the market. The mortgage lock-in effect refers to existing homeowners holding onto their houses since they will have to pay a higher rate on a new house.
Diane Swonk, KPMG chief economist, talked about the downside of this positive news with CNBC saying that it couldn’t spur buyer activity a lot. In the existing housing market, there is a lot of pent-up demand especially with 12,000 millennials a day turning 35 and moving into their peak home-buying years. Many buyers are still waiting for mortgage rates to go even lower in the hopes of the Fed rate cut. Other than that, home affordability being at its worst since 2006 is further pushing out potential buyers. The root cause in this case remains decades of under-building which has restricted the prevailing supply. According to Swonk, the US zoning laws need to be rethought to solve this housing crisis
Therefore, homebuyers and homeowners in the current tight housing market tend to see a welcome sign in the form of lowering mortgage rates ahead of the rate cuts from the Federal Reserve. However, the market continues to be plagued with persistent supply shortages and affordability issues.
Our Methodology:
In order to compile a list of the 10 best home builder stocks to buy now, we first used a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best home builder stocks to buy now have been arranged in ascending order of their hedge fund holders, as of Q2 2024.
At Insider Monkey we are obsessed with 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).
An employee of the company pointing out the features of a house to a first-time homebuyer.
Meritage Homes Corporation (NYSE:MTH)
Number of Hedge Fund Holders: 33
Meritage Homes Corporation (NYSE:MTH) is the 5th largest American homebuilder based on the homes closed in the year 2023. The home builder provides energy-efficient and affordable entry-level and first-move-up homes. It operates in multiple states including Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee.
The company has a long history of home building. It has successfully delivered 185,000 homes during its 38 years in business. Other than being well-reputed for its quality construction and distinctive style, the firm is an industry leader in energy-efficient homebuilding. The current competitive advantage of Meritage Homes Corporation (NYSE:MTH) is the available supply of quick turning move-in ready homes.
With the highest second-quarter closings and the highest second-quarter orders volume of 3,799 homes, the firm outperformed during the recent quarter. Home closing revenue climbed 10% year-over-year to $1.7 billion. Amidst prevailing housing conditions in the country, the firm’s focus on affordable move-in ready inventory enables the home builder to accelerate its growth. Overall, the year’s first half went well with increasing total sales orders and home closing revenue.
The quick turning move-in ready homes strategy, strong balance sheet, and prioritizing pace over price has positioned Meritage Homes Corporation (NYSE:MTH) for growing its market share. As of 2024’s second quarter, the stock is held by 33 hedge funds. Citadel Investment Group serves as the most dominant shareholder in the company.
Overall MTH ranks 7th on our list of the best home builder stocks to buy. While we acknowledge the potential of MTH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MTH 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.