We recently compiled a list of the 10 Best Undervalued Stocks To Buy Now. In this article, we are going to take a look at where PulteGroup, Inc. (NYSE:PHM) stands against the other undervalued stocks.
Demographic Shifts and AI Innovation: A Bullish Case For the US Market
In the prior couple of years, experts and analysts were worried about a recession in the US and their best-case scenario was a soft landing. Experts are still predicting the latter. However, 2024 has proven to be quite a healthy year for the US stock market as it recently hit new highs on the back of technology stocks. Moreover, we also saw notable market broadening in the latest earnings season. However, Co-Founder and Head of Research at Fundstrat Global Advisors, Tom Lee is not just bullish on the current year but also sees the US stock market almost tripling by the end of the decade.
On June 26, Lee told CNBC that he believes the S&P 500 could reach 15,000, driven by a combination of demographic trends and technological advancements. He compared today’s market to past periods of rapid growth, such as the 1920s and the 1950s-1960s. He credits the potential surge to an increase in the population of prime-age adults (30 to 50 years old), which is now led by Millennials and Gen Z. As these generations enter their peak earning years, their borrowing and spending are set to increase, and they are going to take major life decisions which are expected to drive economic growth.
In addition to these demographic factors, Lee highlights the transformative impact of artificial intelligence (AI) on the economy. He believes that AI presents a significant opportunity for US technology companies, especially as it addresses a global labor shortage by converting labor costs into technological solutions, which would probably boost the US tech sector revenues. Furthermore, the US, with its leading technology sector, is well-positioned to attract substantial global investment, especially as we see that other regions like China and Germany face demographic and economic challenges.
Despite Tom Lee’s optimism, he acknowledged several risks to his bullish outlook. He said that a global recession could undermine growth, and the development of AI could also backfire or cause geopolitical instability. Additionally, there is the potential for the stock market to peak prematurely, forming a bubble.
Despite the risks, Tom Lee predicts an optimistic outlook for the US market in the current decade. Based on his insights, this could be an ideal time to invest in the market for the longer term. Keeping in mind that Lee predicts good things for the future of AI, you can take a look at the 10 Best Artificial Intelligence Stocks to Buy Under $10.
Our Methodology
For this article, we identified over 40 stocks that were considered undervalued by other financial media websites. From that list, we narrowed our choices to 10 stocks whose forward PE ratio was either equal to or below 15 or was below their industry average, as of June 24. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? 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).
Construction workers laying bricks during the residential development of multiple lots.
PulteGroup, Inc. (NYSE:PHM)
Forward PE as of June 24: 11.6
Number of Hedge Fund Holders: 39
PulteGroup, Inc. (NYSE:PHM) is a Georgia-based company that is primarily focused on acquiring and developing land and constructing housing on said lands. It is one of the largest homebuilders in the United States. At the end of Q1, 39 hedge fund managers were long on PulteGroup, Inc. (NYSE:PHM), with stakes worth $1.67 billion according to Insider Monkey’s database. As of March 31, Greenhaven Associates is the most dominant shareholder in the company and has a position worth $684.014 million.
PulteGroup, Inc. (NYSE:PHM) has consistently demonstrated its commitment to strategic expansion and operational enhancement. Since 2021, the company’s operating teams have allocated approximately $14 billion towards land acquisition and development initiatives and plans to further invest $5 billion throughout 2024. Importantly, the first-quarter land spend is according to the company’s annual target, as the company remains committed to achieving annual unit volume growth ranging from 5% to 10%.
Moreover, an important aspect of PulteGroup, Inc.’s strategy lies in its land management practices, with 51% of its land holdings structured through options. The company aims to increase this metric to 70%. This strategy involves using land options, which are agreements that give the company the right, but not the obligation, to purchase land at a later date. By utilizing options instead of outright purchasing land, the company reduces the capital required upfront which decreases the capital intensity of the company’s land portfolio. This flexibility not only reduces financial risks but also helps PulteGroup to streamline its operational efficiency by selectively going after economically viable development projects.
Should you buy PHM at current prices? The stock is trading at a forward PE of 8.6, a 43% discount to its sector. PHM is attractive at current levels considering analysts expect the company’s earnings to grow by 11% this year. The stock has gained 35% over the past 12 months and the Street-median price target implies a further upside of 18%, as of June.
Overall PHM ranks 7th on our list of the best undervalued stocks to buy. You can visit 10 Best Undervalued Stocks To Buy Now to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of PHM 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 timeframe. If you are looking for an AI stock that is more promising than PHM 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.
