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

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

Number of Hedge Fund Holders: 62

D.R. Horton, Inc. (NYSE:DHI) is an American home construction company that sells homes in 113 markets across 33 states. The company started off with its first home in 1978 and completed over 1,000,000 homes in 2023. Other than homebuilding, the homebuilder offers other services such as mortgage, title, and insurance. The homebuilder has Express Series for first-time homebuyers, Emerald Series for high-end homes, and Freedom Series for easy living and low maintenance. Rental communities for those who cannot own a home are also available.

D.R. Horton, Inc. (NYSE:DHI) has a clear dominance in the home building market as it has been the largest home builder by volume since 2002. The market share dominance is evident from the fact that the company served as the largest builder in 3 of the top 5 US housing markets and in 52 of the 118 markets in which it operated on September 30, 2023. During the trailing twelve months ended June 30, the firm closed 94,255 homes. The diverse product offerings and price points also offer a competitive advantage.

Apart from the market dominance, the track record of commendable financial performance remains strong. The fiscal third quarter of 2024 is a recent proof. The firm recorded earnings of $4.10 per diluted share, up 5% from the prior year period. The consolidated revenues increased 2% to $10.0 billion and consolidated pre-tax income increased 1% to $1.8 billion. Home sales revenues of $9.2 billion were secured on 24,155 homes closed in the quarter. With affordable product offerings and flexible lot supply in a supply-deficient market, D.R. Horton, Inc. (NYSE:DHI) continues to position itself well in the market.

Based on a market-leading position, strong financial performance, and a strategy that aligns with the market demographics, DHI ranks among the 10 best home builder stocks to buy now. The stock was held by 62 hedge funds, as of Q2 2024. Greenhaven Associates was the largest shareholder in the company.

Overall DHI ranks 1st on our list of the best home builder stocks to buy. While we acknowledge the potential of DHI 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 DHI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.