Lennar Corporation (LEN), PulteGroup (PHM) & Other Homebuilders Loved by Hedge Funds

Toll Brothers is positioned quite nicely in the luxury homebuilding realm, which inherently provides two advantages: customers have fewer difficulties with interest rate changes, and the high-net-worth niche itself is developing at a faster rate than the broader housing market. One of the top hedge funds invested in the stock at the end of the last filing period was Steven Cohen and SAC Capital (see all of Steven Cohen’s top stock picks).

Fourth on our list is D.R. Horton, Inc. (NYSE:DHI), with 25 hedge funds holding interest. D.R. Horton has returned a little over 50% in the past year, far better than its sub 1% dividend yield. While its primary markets are in the western U.S., in states like Texas, Arizona, California and Colorado, D.R. Horton has expanded into North Florida. The Street is bullish on this move, as it expects the homebuilder to generate earnings growth of 24-25% a year over the next half-decade. The markets, though, haven’t bought into these forecasts, as DHI still trades at a lowly PEG of 0.31.

D.R. Horton reports its next quarterly earnings on January 29th; analysts are expecting earnings of 15 cents a share on revenues of $1.1 billion. These numbers represent growth above 20% from the previous year, but it’s worth noting that the homebuilder’s top line did come in a little light last quarter. Investors would be wise to watch this situation closely, as a beat could mean that more value-based appreciation is in store.

Last but certainly not least, NVR, Inc. (NYSE:NVR) is the hedge fund industry’s fifth favorite homebuilder. Like Lennar, NVR has a key advantage over its competition with regard to profitability. Generally speaking, NVR avoided the huge losses that its peers experienced in the last housing market downturn because of its decision to acquire land by using option contracts, rather than outright purchases. The sell-side expects decent annual EPS growth of 12.5% over the next five years, but a growth multiple of 2.6 indicates that investors may be better off waiting for a more attractive entry point. Wall Street seems to agree, as its average price target rests near $906, more than six percentage points below NVR’s current market price.

For more related coverage, continue reading below:

Ken Griffin Loves This Homebuilder

Is Lennar The Best Way to Profit From Homebuilding?

Billionaires are Betting on LEN

Disclosure: I have no positions in any of the stocks mentioned above