Below we present the list of 5 Best Home Builder Stocks To Buy Now. For our methodology and a more comprehensive list please see 11 Best Home Builder Stocks To Buy Now.
5. PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Shareholders: 36
Hedge fund ownership of PulteGroup, Inc. (NYSE:PHM) sank by 46% during the first half of 2022 but has since made up all of those declines over the past three quarters. Louis Bacon’s Moore Global Investments and Dmitry Balyasny’s Balyasny Asset Management were among the prominent funds to add PHM to their 13F portfolios over the past three quarters.
PulteGroup, Inc. (NYSE:PHM)’s gross orders rose by 1% year-over-year in Q1 to 8,898 homes, though net new orders fell by 8% to 7,354 homes. The dollar value of net new orders fared even worse, slumping by 20% to $3.8 billion. PulteGroup had a backlog of 13,129 homes at the end of Q1 with a value of $8 billion. While selling prices were down in Q1, lower expenses resulted in improved margins, which drove an earnings beat during the quarter.
Miller Value Partners discussed PulteGroup, Inc. (NYSE:PHM)’s performance during the financial crisis and how its fundamentals ultimately prevailed in the fund’s Q2 2022 investor letter:
“Homebuilders and financials, the worst losers during the Financial Crisis crash, plummeted. Some homebuilders, like PulteGroup, Inc. (NYSE:PHM), traded down to half their financial crisis lows despite reporting housing improvements for the first time. Fear ruled in the short term, but fundamentals ultimately prevailed. Homebuilders were top performers in 2012 posting triple-digit increases in some cases. Opportunity Equity was a top performer that year.”
4. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Shareholders: 37
There was an 18% jump in hedge fund ownership of Toll Brothers, Inc. (NYSE:TOL) during Q4, with ownership then remaining flat in the first quarter of this year. Michael Zimmerman’s Prentice Capital Management and Jim Simons’ Renaissance Technologies were among the funds to add TOL to their 13F portfolios during Q4.
Luxury home maker Toll Brothers, Inc. (NYSE:TOL) had a strong fiscal Q2, with revenue hitting $2.51 billion and EPS surging to $2.85, both of which crushed estimates. The company cited strong demand in its fiscal Q2 and into its fiscal Q3, which allowed it to raise its delivery guidance for the year. Toll Brothers now projects to deliver 8,900 to 9,500 homes during its current fiscal year at an average price north of $975,000.
Baron Funds noted that Toll Brothers, Inc. (NYSE:TOL) is more insulated from higher mortgage rates than many of its peers in the fund’s Q4 2022 investor letter:
“Toll Brothers, Inc. (NYSE:TOL) is the leading luxury homebuilder in the U.S. with a capable management team as well as a large and valuable owned land portfolio. Toll Brothers is more insulated than its peers from elevated mortgage rates because 20% of the buyers of Toll homes pay 100% in cash.
At its year-end 2022 price of only $49.92/share, the company is valued at only 0.83 times our estimate of 2023 tangible book value of $60/share. Historically, Toll Brothers’ shares have been valued, on average, at 1.4 times book value and a peak multiple of approximately 2.0 times tangible book value. If the shares recover in the next few years and trade only to the company’s long-term average multiple of 1.4 times book value, Toll Brothers’ share price would increase 82% to $91 per share.”
3. NVR, Inc. (NYSE:NVR)
Number of Hedge Fund Shareholders: 39
There’s been a 38% increase in the number of funds long NVR, Inc. (NYSE:NVR) since the middle of 2021, pushing the company into third place among hedge funds’ top homebuilder stock picks. Ric Dillon’s Diamond Hill Capital owns 108,803 NVR shares as of March 31, valued at over $606 million. The fund also discussed NVR, one of its top performers in Q1, in the firm’s latest Large Cap Strategy investor letter, linked to below.
Bank of America was bullish on NVR, Inc. (NYSE:NVR) shares in 2023 back in January, citing their historical outperformance when the housing market has been weaker. It had a $5,500 price target on the stock and considered the company’s its top pick in the home building space. On the other hand, Deutsche Bank has a ‘Sell’ rating and $4,400 price target on NVR, noting that the company’s valuation appears to be too rich based on where fundamentals are likely to trend next year. NVR earned $99.89 per share in Q1, beating estimates by $10.93.
The Diamond Hill Large Cap Strategy is bullish on NVR, Inc. (NYSE:NVR)’s strong Q4 results and balance sheet according to the fund’s Q1 2023 investor letter:
“We did have several strong performing stocks this quarter. Our top contributors to return included NVR, Inc. (NYSE:NVR), Amazon, Alphabet, Microsoft and Booking Holdings, all of which posted double-digit gains.
Homebuilding stocks had a strong start to 2023. Companies in this industry typically perform well ahead of spring selling season and have benefitted this year from mortgage rates dropping and better than expected sales activity. In addition to the broad positive sentiment, homebuilder NVR also reported strong Q4 results and continues to have a best-in-class balance sheet.”
2. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Shareholders: 46
Hedge fund ownership of D.R. Horton, Inc. (NYSE:DHI) remained flat during Q1 as the top homebuilder in the U.S. held on to second place among hedge funds’ favorites in the space. Edgar Wachenheim’s Greenhaven Associates, which is also extremely bullish on the top stock on this list, was the largest shareholder of DHI on March 31, owning 3.65 million shares.
Wedbush was bullish on affordable builders like D.R. Horton, Inc. (NYSE:DHI) and Skyline Champion Corporation (NYSE:SKY) heading into 2023 given what the firm assumed would be a favorable rate environment. D.R. Horton was also named a Top Pick for the first half of 2023 by BTIG, which had a $101 price target on the stock in early January. D.R. Horton is projecting Q3 revenue of between $8 billion and $8.5 billion, well ahead of the consensus estimates of $7.12 billion.
Baron Funds shared its bullish sentiments on D.R. Horton, Inc. (NYSE:DHI) in the fund’s Q4 2022 investor letter:
“The shares of D.R. Horton, Inc. (NYSE:DHI), the number one homebuilder by volume in the U.S., gained 31% in the most recent quarter following strong business results.
We are bullish about the long-term prospects for D.R. Horton primarily due to two key considerations:
1) We believe the company is positioned to perform well over time given its status as the largest and lowest-cost producer in the entrylevel home segment for first-time buyers and baby boomers looking for an affordable home. In the last fiscal year, approximately 67% of D.R. Horton’s home sales were for prices less than $400,000, thereby enabling the company to satisfy the home affordability constraints of many potential home buyers.
2) We are enthusiastic about D.R. Horton’s continued transition to a stronger and more asset-light balance sheet by outsourcing its land development spending needs to third-party developers such as Forestar Group Inc. D.R. Horton’s transition to a less capital-intensive business model is leading to stronger cash-flow generation, lower debt levels, an ability to pursue more share repurchases and/or other investment opportunities, and a higher-valuation multiple.”
1. Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Shareholders: 51
While Lennar Corporation (NYSE:LEN) is well off its all-time high in terms of hedge fund ownership, the company nonetheless remains the most popular homebuilder among the smart money. Edgar Wachenheim’s Greenhaven Associates remained Lennar’s top shareholder for the 19th straight quarter, owning over 9.1 million shares. LEN also ranks as the firm’s top stock pick, with the fund having 14.8% 13F exposure to the stock.
Lennar Corporation (NYSE:LEN) is projecting between 16,000 and 17,000 new orders in its fiscal Q2 and noted that cancellations and pricing were both stabilizing throughout Q1. The company is also focused on reducing costs and returning more money to shareholders and is exploring options like 3D printing of materials in an effort to deliver more homes.
BTIG has a $120 price target on Lennar Corporation (NYSE:LEN), up from $116 previously, and a ‘Buy’ rating on the stock. The firm likes the fact that the company is prioritizing the pace of building over price, noting that Lennar is already a price leader in many of the markets it operates in.
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