10 Best Housing Stocks to Buy Now

Published on September 12, 2022 at 3:22 pm by Ramish Cheema in Hedge Funds, News

In this piece, we will take a look at the ten best housing stocks to buy now.

A house is one of the biggest and most important purchases that most individuals without generational wealth or family homes will make. The housing industry itself is a crucial part of the economy, with the growth in construction tied to real estate development, which in turn often serves as a useful barometer of economic health due to the jobs that it generates.

This is why the housing sector, which most folks invest in through a real estate investment trust (REIT) or through buying shares of firms, is thought to be a stable investment with good dividend income. The ever increasing prices of homes also generate steady growth for this industry, and this trend is also visible in market research reports for the segment.

Almost all of these pegs the value of the real estate sector in the trillions of dollars, and the first one that we have for you today is from Allied Market Research. This firm estimates that the sector was worth $6.8 trillion in 2018, and between 2019 and 2026 it will grow at a compounded annual growth rate (CAGR) of 2.8%, enabling it to touch an outstanding value of $8.6 billion at the end of the forecast period.

Another report, from Research and Markets, takes a look at the global real estate market and estimates that it will be worth $5.85 trillion by the end of 2030, as it grows at a CAGR of 5.2% starting from this year. Driving this growth will be China, India, and Africa, as large segments of their populations start to earn sufficient incomes for a home purchase. Focusing on the housing market, in particular, the report cites the United Nations to report that the supranational body estimates that 65% of the world’s population will live in urban areas by 2030. This, in turn, will naturally drive up the demand for houses and other accommodations as well.

Finally, Danielle Hale, who is the chief economist at the real estate site Realtor.com, is also out with her latest take on the rental sector. A growing price for home purchases ends up increasing the value of the real estate market but it also reduces demand, which then in turn causes more people to live on rent. Ms. Hale estimates that urban areas are witnessing a faster (12.8%) growth in rent as compared to rural areas and that the rent for studio apartments is growing faster than that for multiple bedroom units. She also outlines that rent grew by 12.3% annually in July this year.

Looking at these details, we decided to sift out some of the top housing stocks for your consideration, and some that might end up catching your eye include Lennar Corporation (NYSE:LEN), Builders FirstSource, Inc. (NYSE:BLDR), and Lowe’s Companies, Inc. (NYSE:LOW).

10 Best Housing Stocks to Buy Now

Our Methodology

In order to pick out the top housing stocks for you to buy today, we took a broad look at the industry and the different companies that are operating in it. The firms were then sifted out through their performance and other important details, such as P/E ratios and CAGR growths. The stocks are ranked via Insider Monkey’s 895 hedge fund survey for the second quarter of this year.

10 Best Housing Stocks to Buy Now

10. LGI Homes, Inc. (NASDAQ:LGIH)

Number of Hedge Fund Holders: 17

LGI Homes, Inc. (NASDAQ:LGIH) is an American company that is headquartered in The Woodlands, Texas. The firm is primarily a homebuilder that is involved in the construction of entry level, active, and luxury homes. Additionally, it also sells homes wholesale to companies looking to put them out on rent.

LGI Homes, Inc. (NASDAQ:LGIH) is one of the strongest growing home companies out there, as the firm’s book value, which is a measure of its total worth, has grown by a whopping 28% CAGR since 2016 – indicating that as the years have passed, the company has been able to build more homes. It also has the highest turnover in the industry, being able to build a house from scratch in 60 days as opposed to the 90-180 day industry average, which allows for a high turnover. LGI Homes, Inc. (NASDAQ:LGIH) also has a unique business model which sees it directly scout the market for home interest before starting its building activities.

JMP Securities reduced LGI Homes, Inc. (NASDAQ:LGIH)’s share price target to $140 from $175 in August 2022, even as it called the firm’s Q2 earnings report “exceptional”. 17 out of the 895 hedge funds polled by Insider Monkey during Q2 2022 had invested in the company.

Out of these, Kerr Neilson’s Platinum Asset Management is LGI Homes, Inc. (NASDAQ:LGIH)’s largest investor. It owns 414, 391 shares that are worth $36 million.

Carillon Tower Advisers mentioned the company in its Q1 2022 investor letter, outlining that:

“LGI Homes (NASDAQ:LGIH) builds homes in 18 states with a focus on the entry-level homebuyer. The company focuses on renters and has move-in ready inventory. The stock has benefited over the past year as the pandemic, low interest rates, and limited supply have driven demand for standalone housing. During the quarter management lowered guidance for future closings and gross margin, leading the stock to struggle.”

Along with Builders FirstSource, Inc. (NYSE:BLDR), Lennar Corporation (NYSE:LEN), and Lowe’s Companies, Inc. (NYSE:LOW), LGI Homes, Inc. (NASDAQ:LGIH) is a hot housing stock.

9. PulteGroup, Inc. (NYSE:PHM)

Number of Hedge Fund Holders: 19

PulteGroup, Inc. (NYSE:PHM) is an American homebuilder that was set up in 1950 and is headquartered in Atlanta, Georgia. The company is involved primarily in buying land for homebuilding, and it offers its customers several designs to choose from for their future homes.

PulteGroup, Inc. (NYSE:PHM) managed to grow its gross margins during its first quarter at a time when the housing market was believed to have entered a slowdown as its earnings revealed that gross margins stood at 29% over last year’s 25.5%. The company also has a fortress balance sheet, with its total assets being 3x its total liabilities – indicating a healthy financial structure. Finally, PulteGroup, Inc. (NYSE:PHM)’s dividends have grown at a 12% CAGR since 2013 – outstripping industry peers. It currently pays a $0.15 dividend for a 1.47% yield.

BofA kept PulteGroup, Inc. (NYSE:PHM)’s share price unchanged at $82 in August 2022 outlining that the firm has some exposure to risky areas. Insider Monkey took a look at 895 hedge funds for their second quarter of 2022 holdings and discovered that 19 had invested in the company.

PulteGroup, Inc. (NYSE:PHM)’s largest investor is Natixis Global Asset Management’s Harris Associates which owns 4.8 million shares that are worth $191 million.

Miller Value Partners mentioned the company in its Q2 2022 investor letter. Here is what the fund said:

“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.”

8. Redfin Corporation (NASDAQ:RDFN)

Number of Hedge Fund Holders: 19

Redfin Corporation (NASDAQ:RDFN) is a real estate technology company that operates an online real estate platform allowing buyers to make their home purchases. The firm is headquartered in Seattle, Washington, United States.

Buy the low but sell the high is the mantra with Redfin Corporation (NASDAQ:RDFN). The firm’s disappointing recent quarterly results have caused many to question its viability, but a closer look reveals that the company is making progress in crucial segments. One of these is its Redfin Mortgage service, which offers a host of services to buyers on its platforms. Buyers using this platform surged by 11% and 15% in June and July 2022, more than doubling the previous growth record. There are several potential catalysts present for the stock as well, including management targets of a positive operating income next year and plans to phase out commission rebates by January 2023.

Stifel lowered Redfin Corporation (NASDAQ:RDFN)’s share price target to $9 from $10 in August 2022, as it reduced its revenue growth estimates for the firm to 24% from 29% in light of recent macroeconomic events. 19 of the 895 hedge funds part of Insider Monkey’s survey for this year’s June quarter had bought the company’s shares.

Brian Bares’s Bares Capital Management is Redfin Corporation (NASDAQ:RDFN)’s largest investor. It owns 19.8 million shares that are worth $163 million.

Saga Partners mentioned the company in its Q1 2022 investor letter, and it stated that:

Because Redfin is a low-cost provider, it has a relative advantage over traditional brokerages. No other real estate brokerage has lowered or attempted to lower the costs of transacting real estate in a similar way. This cost advantage provides Redfin with options about how to share these savings on each transaction. Redfin has primarily shared the cost savings with customers by charging lower commission rates than traditional brokerages. By offering a similar, if not superior, service to customers compared to other brokerages yet charging lower fees, it naturally attracts further demand which then provides Redfin with the ability to scale fixed costs per transaction even more, further widening their cost advantage to other brokerages.

7. UDR, Inc. (NYSE:UDR)

Number of Hedge Fund Holders: 27

UDR, Inc. (NYSE:UDR) is an S&P 500 real estate investment trust (REIT) that has been in business for almost 50 years and is headquartered in Highlands Ranch, Colorado, United States. The firm buys, holds, develops, and redevelops a host of real estate properties in America.

UDR, Inc. (NYSE:UDR) is one of the largest apartment complex owners in the U.S., with close to 57,000 apartments all over the country. This lends it a crucial advantage during these times as housing prices go up and more people stick with renting. The firm’s credibility is further bolstered by the fact that the income for its resident base is more than 170% higher than the average income for the areas and their rent to income ratio is less than 20%. UDR, Inc. (NYSE:UDR)’s assets outstrip its liabilities by 3x and the firm pays a 38 cent dividend for a 3.33% yield.

Morgan Stanley increased UDR, Inc. (NYSE:UDR)’s share price target to $54 from $47 in August 2022 as its stated that revenues will grow next year. Insider Monkey’s Q2 2022 survey revealed that 27 out of 895 hedge funds had bought the company’s shares.

UDR, Inc. (NYSE:UDR)’s largest investor is Jeffrey Furber’s AEW Capital Management which owns 2 million shares that are worth $98 million.

6. Invitation Homes Inc. (NYSE:INVH)

Number of Hedge Fund Holders: 27

Invitation Homes Inc. (NYSE:INVH) is a single family home leasing company that is headquartered in Dallas, Texas, United States. The firm provides families with homes that are located close to populations and with features of their choice.

Invitation Homes Inc. (NYSE:INVH) has a large rental home portfolio that consists of 80,000 units, making it one of the largest companies of its kind. These are located in solid locations and the average value of these homes is $400,000. Additionally, its properties have a 98% occupancy rate, indicating that its investments are not sitting idle. Finally, Invitation Homes Inc. (NYSE:INVH) also pays a 22 cent dividend for a 2.39% yield.

Barclays set a $39 price target for the company in July 2022, stating that it expects a strong performance from the firm’s rental segment in the future. 17 out of the 895 hedge funds polled by Insider Monkey for their June 2022 holdings had held a stake in Invitation Homes Inc. (NYSE:INVH).

Greg Poole’s Echo Street Capital Management is Invitation Homes Inc. (NYSE:INVH)’s largest investor. It owns a $136 million stake that comes courtesy of 3.8 million shares.

Invitation Homes Inc. (NYSE:INVH) joins Lennar Corporation (NYSE:LEN), Builders FirstSource, Inc. (NYSE:BLDR), and Lowe’s Companies, Inc. (NYSE:LOW) in our list of some of the best housing stocks that you should take a look at.

5. Toll Brothers, Inc. (NYSE:TOL)

Number of Hedge Fund Holders: 29

Toll Brothers, Inc. (NYSE:TOL) is an American company that builds and sells luxury homes in America. Additionally, the company also helps buyers arrange to finance their purchases. It is headquartered in Fort Washington, Pennsylvania.

Toll Brothers, Inc. (NYSE:TOL) has a strong customer base that is in the upper echelon of homebuyers, as the average purchase price for a house built by the company is $1 million. This insulates the company against the effects of an economic downturn. Additionally, the firm operates in markets that have high barriers to entry, such as Los Angeles and San Francisco. Toll Brothers, Inc. (NYSE:TOL) is also aggressively targeting the rental market, having spent $2.3 billion in the segment since 2020. Finally, the firm also pays out a 20 cent dividend for a 1.77% yield.

BofA kept a $49 price target for the company in August 2022, stating that it has a high order backlog and markets are slowing in this economic environment. 29 of the 895 hedge funds polled by Insider Monkey during this year’s second quarter had bought Toll Brothers, Inc. (NYSE:TOL)’s shares.

Toll Brothers, Inc. (NYSE:TOL)’s largest investor is Edgar Wachenheim’s Greenhaven Associates which owns 5.3 million shares that are worth $238 million.

4. D.R. Horton, Inc. (NYSE:DHI)

Number of Hedge Fund Holders: 44

D.R. Horton, Inc. (NYSE:DHI) is an American homebuilder that operates in several regions of the North American country. Its residential home sales division operates in 31 American states and the company sells several kinds of houses such as detached and attached homes.

D.R. Horton, Inc. (NYSE:DHI) managed to keep a firm grip on its cancellations during its third fiscal quarter, as despite demand slowing down, it reported that its cancellations were being resold. The company has a large market at its disposal since the average selling price for most of its homes is below $350,000 – lower than the national average. This has also enabled D.R. Horton, Inc. (NYSE:DHI) to grow its market share from 9% in 2009 to 11% by the end of last year. Finally, the company has nearly doubled its lot count to 598,200 as of late. D.R. Horton, Inc. (NYSE:DHI) also pays a 23 cent dividend for a 1.26% yield.

Insider Monkey studied 895 hedge fund portfolios for this year’s second quarter to discover that 44 had held a stake in D.R. Horton, Inc. (NYSE:DHI).

Out of these, John Armitage’s Egerton Capital Limited is D.R. Horton, Inc. (NYSE:DHI)’s largest investor. It owns 7.6 million shares that are worth $504 million.

Palm Valley Capital Management mentioned the company in its Q2 2022 investor letter. Here is what the fund said:

“Vidler Water was acquired by homebuilder D.R. Horton (NYSE:DHI) during the second quarter for $15.75 per share, a modest 19% premium to the 90-day volume weighted average price. D.R. Horton can use Vidler’s water rights to satisfy government requirements to have water resources available before it breaks ground on new housing developments in Nevada. The takeover price was below our valuation, but D.R. Horton was the only real buyer who stepped up to the plate for Vidler’s assets. The deal appears to have leaked early, since the stock surged in the weeks before the announcement.”

3. Lennar Corporation (NYSE:LEN)

Number of Hedge Fund Holders: 47

Lennar Corporation (NYSE:LEN) is a homebuilder that sells several kinds of houses such as single family attached and detached homes. Additionally, it also develops and sells residential land and multifamily rental properties. The firm is headquartered in Miami, Florida, United States.

Lennar Corporation (NYSE:LEN) was one of the few housing companies that saw its net income grow during its second quarter, as bottom line profits surged by 59% at a time when the market was in a downturn. During the same time, the firm increased its deliveries by 14% and backlog by 16% – both indicating the resilience of its business model in a tough macro environment. At the same time, the firm’s balance sheet grew stronger as its net debt to capital declined to 13% from a high of 32% in 2019. Lennar Corporation (NYSE:LEN) also pays a 38 cent dividend for a 1.90% yield.

Lennar Corporation (NYSE:LEN)’s share price target was kept at $82 by BofA in August 2022 as the bank highlighted that the company’s strong exposure in several markets is partially offset by a strong position in Florida. 47 of the 895 hedge funds part of Insider Monkey’s Q2 2022 survey had bought the company’s shares.

Lennar Corporation (NYSE:LEN)’s largest investor is Edgar Wachenheim’s Greenhaven Associates which owns 9.3 million shares that are worth $657 million.

2. Builders FirstSource, Inc. (NYSE:BLDR)

Number of Hedge Fund Holders: 53

Builders FirstSource, Inc. (NYSE:BLDR) is an upstream homebuilding company that provides building materials and construction services to professional homebuilders. The firm is headquartered in Dallas, Texas, United States of America.

A key factor about Builders FirstSource, Inc. (NYSE:BLDR) is the fact that the firm has an outstanding return on capital invested (ROIC) of 43% – which is significantly higher than its weighted average cost of capital (WACC) and indicates that the firm is a worthy investment. Additionally, its consensus share price target is $97.21, for a significant upside over the current share price of $61.

Stifel raised Builders FirstSource, Inc. (NYSE:BLDR)’s share price target to $92 from 87 in August 2022 as it highlighted that the firm will generate significant cash flow and use it for acquisitions. Insider Monkey’s 895 hedge fund survey for this year’s June quarter saw 53 investors in the company.

Builders FirstSource, Inc. (NYSE:BLDR)’s largest investor in our database is Christopher Shackelton and Adam Gray’s Coliseum Capital which has a $347 million stake that comes through 6.4 million shares.

Black Bear Value Partners mentioned the company in its Q1 2022 investor letter. Here is what the fund said:

“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.

The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.

The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.

BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”

1. Lowe’s Companies, Inc. (NYSE:LOW)

Number of Hedge Fund Holders: 53

Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement company that is one of the oldest of its kind as it was set up in 1921 and is headquartered in Mooresville, North Carolina, the United States. The firm sells a variety of home improvement products such as flooring, hardwood, millwork, paint, and plumbing.

Lowe’s Companies, Inc. (NYSE:LOW) is the second largest home improvement products provider in the world and it has close to 2,000 stores in the U.S. and Canada. The firm’s forward Price to Earnings ratio sits at 14.2x, which is below its historic P/E ratio of 20.8 and indicates that the shares are at a discount. Lowe’s Companies, Inc. (NYSE:LOW) has also grown its dividends at a 19% CAGR over the past five years and investors in the stock are rewarded by a healthy 26% payout ratio. As of the moment, the company pays a $1.05 dividend per share for a 2.12% yield.

Truist raised Lowe’s Companies, Inc. (NYSE:LOW)’s share price target to $263 from $237 in August 2022 as it shared that the firm’s sales and profitability are growing. 53 of the 895 hedge funds part of Insider Monkey’s 895 hedge fund survey for Q2 2022 had held a stake in the company.

Lowe’s Companies, Inc. (NYSE:LOW)’s largest investor is Bill Ackman’s Pershing Square which owns 10 million shares that are worth $1.7 billion.

10 Best Housing Stocks to Buy Now

Published on September 12, 2022 at 3:22 pm by Ramish Cheema in Hedge Funds, News