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5 Popular Homebuilders Gurus Have Constructed Positions In

Summary

  • Despite supply chain issues, housing demand remains strong.
  • These companies are popular among gurus.

While supply chain issues and labor shortages persist for the nation’s homebuilders, home buyer demand continues to be robust.

The National Association of Home Builders/Wells Fargo Housing Market Index reported builder confidence in the single-family home construction market rose four points to 80 in October, which is still positive despite being down from 85 in October of last year and from the record high of 90 in November 2020.

Of the index’s three components, current sales conditions climbed five points to 87, while sales expectations in the next six months increased three points to 84 and buyer traffic rose four points to 65.

As prices continue to rise to meet the increasing costs of land, labor and materials, the biggest concern now for builders and potential buyers alike is affordability. The U.S. Census noted the median price of a newly built home sold in August was 20% higher than in the same month last year.

Based on these developments, investors may be looking for good opportunities that gurus also see value in as of the end of the second quarter. According to the Aggregated Portfolio, a Premium GuruFocus feature, as of Oct. 18, homebuilders that are popular among gurus include D.R. Horton Inc. (DHIFinancial), Lennar Corp
LEN
. (LENFinancial), Tri Pointe Homes Inc. (TPHFinancial), PulteGroup Inc.
PHM
(PHMFinancial) and Toll Brothers Inc
TOL
. (TOLFinancial).

D.R. Horton

With a combined equity portfolio weight of 15.98%, 15 gurus are invested in D.R. Horton (DHIFinancial).

The Fort Worth, Texas-based home construction company has a $31.43 billion market cap; its shares were trading around $87.82 on Monday with a price-earnings ratio of 8.8, a price-book ratio of 2.28 and a price-sales ratio of 1.24.

The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past performance and future earnings projections.

GuruFocus rated D.R. Horton’s financial strength 5 out of 10. Although the company has issued approximately $1.2 billion in new long-term debt over the past three years, it is at a manageable level. The robust Altman Z-Score of 6.2 also indicates it is in good standing. The return on invested capital overshadows the weighted average cost of capital, so value is being created as the company grows.

The company’s profitability scored an 8 out of 10 rating, boosted by operating margin expansion, returns on equity, assets and capital that outperform a majority of competitors, a high Piotroski F-Score of 7 out of 9, which implies business conditions are healthy, and a predictability rank of 3.5 out of five stars. According to GuruFocus, companies with this rank return an average of 9.3% annually over a 10-year period.

Of the gurus invested in D.R. Horton, George Soros (TradesPortfolio) has the largest stake with 1.1% of its outstanding shares. David Tepper (TradesPortfolio), Pioneer Investments, the Smead Value Fund (TradesPortfolio), Jeremy Grantham (TradesPortfolio), Ray Dalio (TradesPortfolio), Ken Fisher (TradesPortfolio), Ron Baron (TradesPortfolio), Paul Tudor Jones (TradesPortfolio) and several other gurus also own the stock.

Lennar

Fourteen gurus have positions in Lennar (LENFinancial), representing a combined weight of 12.87%.

The homebuilder, which is headquartered in Miami, has a market cap of $30.07 billion; its shares were trading around $99.36 on Monday with a price-earnings ratio of 7.53, a price-book ratio of 1.5 and a price-sales ratio of 1.2.

According to the GF Value Line, the stock appears to be significantly overvalued currently.

Lennar’s financial strength was rated 5 out of 10 by GuruFocus. While assets are building up at a faster rate than revenue is growing, the Altman Z-Score of 4.23 indicates the company is in good standing. The ROIC also eclipses the WACC, indicating good value creation is occurring.

The company’s profitability fared even better with an 8 out of 10 rating, driven by expanding margins, strong returns that outperform industry peers, a high Piotroski F-Score of 8 and a three-star predictability rank as revenue and earnings growth been consistent. GuruFocus data shows companies with this rank return an average of 8.2% annually.

With a 0.92% stake, Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder. Other gurus invested in the stock include the Smead Value Fund (TradesPortfolio), Fisher, Pioneer Investments, Dalio, Grantham, Baron, Third Avenue Management (TradesPortfolio), Ronald Muhlenkamp (TradesPortfolio) and John Hussman (TradesPortfolio).

Tri Pointe Homes

Holding a combined portfolio weight of 1.7%, 12 gurus have positions in Tri Pointe Homes (TPHFinancial).

The Incline Village, Nevada-based homebuilder has a $2.66 billion market cap; its shares were trading around $23.99 on Monday with a price-earnings ratio of 7.68, a price-book ratio of 1.23 and a price-sales ratio of 0.8.

Based on the GF Value Line, the stock appears to be fairly valued currently.

GuruFocus rated Tri Pointe’s financial strength 4 out of 10. Although the cash-to-debt ratio is underperforming compared to over half of other industry players, the company has a high Altman Z-Score of 3.74. The ROIC also surpasses the WACC, indicating value is being created.

The company’s profitability fared better, scoring a 7 out of 10 rating. Despite having a declining operating margin, Tri Pointe is supported by strong returns that outperform over half its competitors. It also has a high Piotroski F-Score of 8.

Fisher is the company’s largest guru shareholder with 0.79% of its outstanding shares. Grantham, Hotchkis & Wiley, Chuck Royce (TradesPortfolio), Third Avenue Management (TradesPortfolio), Murray Stahl (TradesPortfolio), Jim Simons (TradesPortfolio)’ Renaissance Technologies and Hussman, among others, also have positions in the stock.

PulteGroup

A total of 11 gurus have a position in PulteGroup (PHMFinancial), carrying a combined equity portfolio weight of 4.38%.

The home construction company headquartered in Atlanta has a market cap of $12.77 billion; its shares were trading around $49.20 on Monday with a price-earnings ratio of 7.96, a price-book ratio of 1.84 and a price-sales ratio of 1.06.

The GF Value Line suggests the stock is fairly valued currently.

PulteGroup’s financial strength and profitability were both rated 7 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 4.27 indicates the company is in good standing. The ROIC is also above the WACC, indicating value is being created.

The company also has an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7. PulteGroup has a one-star predictability rank. GuruFocus says companies with this rank return, on average, 1.1% annually.

Of the gurus invested in PulteGroup, Tepper has the largest stake with 0.58% of outstanding shares. Grantham, Simons’ firm, Pioneer Investments, Royce, Dalio and Richard Snow (TradesPortfolio) also own the stock.

Toll Brothers

With a combined equity portfolio weight of 0.37%, Toll Brothers (TOLFinancial) is held by 10 gurus.

The Fort Washington, Pennsylvania-based homebuilder has a $7.27 billion market cap; its shares were trading around $59.65 on Monday with a price-earnings ratio of 11.52, a price-book ratio of 1.44 and a price-sales ratio of 0.91.

According to the GF Value Line, the stock is fairly valued currently.

GuruFocus rated Toll Brothers’ financial strength 4 out of 10. While the debt-related ratios are underperforming versus the industry, it has a high Altman Z-Score of 3.23.

The company’s financial strength fared better with a 7 out of 10 rating. Although the operating margin is in decline, Toll Brothers’ returns outperform around half of its competitors. It also has a high Piotroski F-Score of 7 and a one-star predictability rank.

With a 0.15% holding, Pioneer Investments has the largest position in Toll Brothers among the gurus. Baron, Royce, Dalio, Fisher, Jones and several other gurus also have positions in the stock.

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