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 Toll Brothers, Inc. (NYSE:TOL) 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).
A team of architects meeting around a blueprint to discuss the design of a high-end apartment rental.
Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 46
Toll Brothers, Inc. (NYSE:TOL) was founded by the brothers Bob and Bruce Toll in southeastern Pennsylvania in 1967. The firm expanded across the US over the years and emerged as America’s luxury home builder currently building in 24 markets nationwide. Toll Brothers, Inc. (NYSE:TOL) is also a Fortune 500 company that has been recognized as one of the top home builders multiple times.
The home builder’s national footprint positions it in an attractive place for growth. The growth prospects are even stronger as it has the widest variety of products and the widest range of prices of any of the builders. In the words of the builder, there are a number of advantages that sets it apart including prestigious and desirable locations to build in, distinctive architecture, unrivaled choice, and exceptional customer service.
Recently, Toll Brothers generated a record third-quarter home sales revenue of $2.72 billion. The firm’s strong markets included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California. Additionally, the builder forecasts the market conditions to remain positive backed up by low mortgage rates and supply-demand imbalance. Toll’s luxury move-up business will also benefit from older millennials hitting their 40s over the next decade. As baby boomers retire, they are also looking for new homes.
In a housing market long been subject to elevated mortgage rates, Toll Brothers has managed to bring its sales up 25% year-to-date. The firm remains on target to achieve its goal of operating from 410 communities by the year-end. The aforementioned competitive advantages, supportive demographics, and a healthy balance sheet with low net debt deem Toll Brothers, Inc. (NYSE:TOL) an interesting investment. As of Q2, the stock is held by 46 hedge funds with Greenhaven Associates as its largest shareholder.
Overall TOL ranks 4th on our list of the best home builder stocks to buy. While we acknowledge the potential of TOL 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 TOL 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.