Third Avenue Considers D.R. Horton (DHI) as a Safe and Cheap Investment

Third Avenue Management, an investment management company, released its “Real Estate Value Fund” second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund returned a -15.39% (after tax) in the second quarter compared to -17.22% for its benchmark index, the FTSE EPRA NAREIT Developed Index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.

Third Avenue Management discussed stocks like D.R. Horton, Inc. (NYSE:DHI) in the second quarter investor letter. Headquartered in Arlington, Texas, D.R. Horton, Inc. (NYSE:DHI) is a home-building company. On September 6, 2022, D.R. Horton, Inc. (NYSE:DHI) stock closed at $69.99 per share. One-month return of D.R. Horton, Inc. (NYSE:DHI) was -10.75% and its shares lost 23.42% of their value over the last 52 weeks. D.R. Horton, Inc. (NYSE:DHI) has a market capitalization of $26.082 billion.

Here is what Third Avenue Management specifically said about D.R. Horton, Inc. (NYSE:DHI):

“D.R. Horton, Inc. (NYSE:DHI) is the largest homebuilder in the US by volume (the company sold more than 90k homes in the past year) with a well-recognized focus on delivering quality product at the entry-level price point (its average selling price is less than $400k) and market-leading positions in key Sunbelt markets.

While the near-term outlook for DR Horton remains uncertain given the adjustments occurring in the US residential markets, the medium-to-long-term prospects for volume-based homebuilders with super-strong balance sheets and scale advantages continues to be promising in Fund Management’s view. More specifically, (i) residential inventories remain around record-low levels in most major markets when gauged by aggregate units available (see chart below), (ii) demand for single-family residences seem to have multiple secular drivers as the largest generation in US history (the “millennial cohort”) enters its prime home buying years and desires more space not only due to “life events” but also “remote” and “hybrid” working arrangements, and (iii) significant inflation in rental rates for multi-family units in urban areas has left the rent-toown proposition for single-family homes in suburban areas in a compelling range (particularly in the Sunbelt region which is experiencing outsized job growth and wage growth relative to broader national figures).

In Fund Management’s view, the two industry participants that seem most likely to take part in this shift include DR Horton and Lennar Corp. (a long-held position in the Fund). In conjunction, these two “blue-chip builders” now account for approximately 10% of the Fund’s capital, as well as roughly one out of every five new homes built in the Sunbelt. They would also qualify under Third Avenue Founder Marty Whitman’s “Safe and Cheap” maxim as both companies are nearly “net-cash” (i.e., more cash than debt) with common stocks trading at less than five times trailing earnings, on average.”

D.R. Horton, Inc. (NYSE:DHI) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, D.R. Horton, Inc. (NYSE:DHI) was held by 44 hedge fund portfolios at the end of the first quarter, which was 52 in the previous quarter.

We discussed D.R. Horton, Inc. (NYSE:DHI) in another article and shared the stocks that billionaire David Tepper is dumping. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

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