Realogy Holdings Corp (RLGY), Lennar Corporation (LEN): Billionaire Steve Mandel Playing Housing Rebound

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The hedge fund trade

Besides Steve Mandel, there’s several big names in the stock. The largest shareholder is billionaire Leon Black’s Apollo Management with more than 86 million shares. Black acquired this stake when he did a leveraged buyout (LBO) of the company in 2007. He brought Realogy public last year at $27 per share.

After Leon Black, the second-largest holder in Realogy is John Paulson with 13.3 million shares, or a 9.1% stake. There’s probably no better hedge fund manager in the world when it comes to housing than John Paulson. He famously spotted the sub-prime mortgage mess and is estimated to have personally made $15 billion in the housing collapse. He’s now betting on a housing recovery, and with his track record, it doesn’t pay to bet against him in housing.

The other two big names in Realogy are billionaires John Griffin and James Dinan. John Griffin’s Blue Ridge Capital owns 5.2 million shares, and Dinan’s York Capital owns 5.5 million shares. Both managers have said that they see a housing recovery on the horizon.

Other Foolish ways to play a housing rebound

Investors wanting additional exposure to housing can buy the home builders directly. Keep in mind that there is more risk involved with this approach because if housing starts to lag, the home builders are left with unsold homes and building lots. The advantage with Realogy is that its sales associates are independent and overhead is minimal.

In the home-building sector, my two favorite names are Lennar Corporation (NYSE:LEN) and PulteGroup, Inc. (NYSE:PHM). Both housing plays are similarly favorites of Steve Eisman from Emrys Partners. He talked about both companies at the Ira Sohn Value Conference in New York this year.

Lennar Corporation (NYSE:LEN) sees growth continuing for the rest of the year. The company has 34% more homes on back-order than it did at this time last year – that’s 4,055 more homes. To keep up with demand, Lennar Corporation (NYSE:LEN) spent more than $500 million on land to build new homes. When a home builder is buying land, that’s a sign that demand is strong and that the home builder needs the additional land to satisfy deliveries.

In the first quarter of this year, Lennar Corporation (NYSE:LEN) opened 80 new communities and completed 55 communities. Currently, the company has 484 active communities. As a result of its land acquisition program, Lennar Corporation (NYSE:LEN)plans to have 550 active communities by the end of this year. To fund this expansion, Lennar Corporation (NYSE:LEN) has $1.1 billion in cash on hand and an available $525 million credit facility.

PulteGroup, Inc. (NYSE:PHM) builds homes in approximately 55 different markets in the U.S. under the Centex, Pulte Homes, and Del Webb brands. PulteGroup is moving its corporate headquarters from Michigan to Atlanta to be closer to its customer base. Last year, home sales from northern Virginia to Florida represented 37% of its total business. In terms of year-end capital investment, this region represented 43% of the total budget.

By being in the southeast, PulteGroup’s management can pay closer attention to its largest market. Last year, the Raleigh, N.C. market was the only market in the southeast that didn’t grow net orders for new homes. Look for management to pay closer attention to Raleigh, N.C. and all of North Carolina.

PulteGroup has $1.7 billion in cash as it increases its land purchases this year and next. In the first quarter, the company invested $206 million in land purchases. The company ended the first quarter with 650 active communities compared to 753 last year. PulteGroup is closing out existing communities and is looking for new communities to expand.

I still see Realogy as the safest and best way to play a housing recovery. The company has minimal overhead and high margins. Increased home sales and prices lead to bigger commissions. If housing slows down again, the company’s low overhead allows it to weather the storm much better than the home builders.

The article Billionaire Steve Mandel Playing Housing Rebound originally appeared on Fool.com.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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