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11 Best Home Builder Stocks To Buy Now

In this article we present the list of 11 Best Home Builder Stocks To Buy Now. Click to skip ahead and see the 5 Best Home Builder Stocks To Buy Now.

The best home builder stocks to buy now, which includes names like PulteGroup, Inc. (NYSE:PHM), D.R. Horton, Inc. (NYSE:DHI), and Lennar Corporation (NYSE:LEN), have been on a roll over the past several months, with many companies in the space trading up by 40% to 80% from their October lows, when sentiment towards the housing industry was at a low point.

That has investors wondering if the housing stock market today, including some of the 10 Best Commercial Real Estate Stocks To Buy According To Hedge Funds, is due for a correction in the short-term. Signs as to the strength of the current market are somewhat mixed.

The Pending Home Sales Index fell by 5.2% in March, with pending transactions declining by 23.2% during the month from a year earlier. NAR Chief Economist Lawrence Yun noted that the lack of housing inventory has been a boon for housing prices, 28% of which are selling above their listing prices, but has otherwise proven to be a major impediment to sales.

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Real estate investors are also taking a breather from the market according to Redfin, as their home purchases declined by 48.6% in the first quarter, the biggest year-over-year decline the firm has ever recorded. Redfin cited higher interest rates and sliding rent prices as some of the reasons why investors aren’t nearly as bullish on the market at the moment. The firm recently noted that homebuying demand also dropped across the board during the four-week period ended May 25, sliding by 17.4% year-over-year.

Luxury homebuilders are some of the most coveted housing stocks to buy, but even they’re not immune to the effects of rising interest rates, as luxury home prices declined in Q1 for the first time since the financial crisis according to data gathered from 46 leading markets by real estate tracking firm Knight Frank. After rising by 3% in the final quarter of last year, luxury home prices slipped by 0.3% in the first quarter of 2023. The price declines come on the heels of luxury home sales sinking by 38% during the three-month period ended November 30 according to Redfin, the largest drop on record.

If some of that data makes you interested in uncovering some good housing stocks to short, especially given the recent run-up in share prices, then you’re not alone, as the home builder stocks ETF SPDR S&P Homebuilders ETF (XHB) is one of the most heavily shorted ETFs right now, with nearly 12 million of its shares being shorted.

Home builder stocks certainly had a rough go in 2022 and rewarded shorts with nice gains, as existing home sales fell for 12 straight months through January 2023, which represented a new record, and potential buyers increasingly backed out of deals. That shaved billions of dollars in value off the 21 Largest Home Builders in USA, which measures home building stocks by market cap.

That said, there are undoubtedly some good housing stocks to buy given some of the more encouraging signs in the market, including record low inventory and rising orders. Mortgage rates have also been on the downswing of late, making homes more affordable than they’ve been for a long time.

The following housing stocks list showcases the best home builder stocks to buy now according to the select group of hedge funds that are tracked by Insider Monkey’s database. Let’s see which homebuilders the smart money is betting on for favorable long-term returns.

11 Best Home Builder Stocks To Buy Now
11 Best Home Builder Stocks To Buy Now

Photo by Breno Assis on Unsplash

Our Methodology

The following list of the best home builder stocks to buy now is ranked based on hedge fund sentiment as of March 31. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.

All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q1 2023 reporting period.

11 Best Home Builder Stocks To Buy Now

11. Tri Pointe Homes, Inc. (NYSE:TPH)

Number of Hedge Fund Shareholders: 24

 

Lennar Corporation (NYSE:LEN) PulteGroup, Inc. (NYSE:PHM), and D.R. Horton, Inc. (NYSE:DHI) have long ranked as a few of hedge fund’s favorite homebuilder stocks. A homebuilder that hasn’t quite been able to attract the same level of smart money interest is Tri Pointe Homes, Inc. (NYSE:TPH). The number of funds long TPH currently stands at one of its lowest levels in the last four years, with a few funds selling off their stakes in Tri Pointe Homes during Q1.

High-end homebuilder Tri Pointe Homes, Inc. (NYSE:TPH) is guiding to deliver between 900 and 1,000 during the current quarter and between 4,500 and 5,000 homes this year. For the full year, it expects its average sales price to land between $690,000 and $700,000. Oppenheimer analyst Tyler Batory has a ‘Perform’ rating on the stock, with no price target, and would like to see progress on the company’s growth plans outside of California before leaning one way or the other on it.

The Third Avenue Management Small-Cap Value Fund, which remains a TPH shareholder to this day, pointed out the value of Tri Pointe Homes, Inc. (NYSE:TPH)’s land assets in the fund’s Q4 2021 investor letter:

“Single-Family (4.0% of assets): Tri-Pointe Holdings own highly attractive land assets in supply constrained geographies. The company have taken advantage of the single-family housing boom by monetizing assets at attractive prices despite a challenged cost environment. Tri-Pointe’s exceptional asset quality coupled with insatiable demand for residential housing should allow them to grow intrinsic value despite higher costs and supply chain delays industrywide.”

10. Skyline Champion Corporation (NYSE:SKY)

Number of Hedge Fund Shareholders: 25

 

There’s been a decline in smart ownership of Skyline Champion Corporation (NYSE:SKY) over three of the past four quarters in the wake of the stock hitting a new high in hedge fund ownership in Q1 of 2022. Nonetheless, the stock still cracks the top 10 best home builder stocks to buy now list. Michael Kaufman’s MAK Capital One has the most bullish stake in the company, owning an even 3 million shares worth $226 million and having 35.5% 13F exposure to the stock as of March 31.

Skyline Champion Corporation (NYSE:SKY) has reported strong bottom-line results in recent quarters as its operational efficiency improves and the company’s customer-focused initiatives pay dividends. It earned $1.00 per share in its fiscal Q4, beating estimates by $0.07, and crushed estimates by $0.52 in fiscal Q3, pulling in $1.44 per share. The company recently noted that its backlogs have begun to normalize after dipping in previous quarters, which should allow it to outperform in the near-term.

The Wasatch Small Cap Value Fund is appreciative of the steps Skyline Champion Corporation (NYSE:SKY) has taken to simplify its product line, as revealed in the fund’s Q4 2021 investor letter:

“Manufactured-housing producer Skyline Champion Corp. (SKY) also helped the Fund’s results. Skyline has executed well and has benefited from simplification of its product line. Broader industry trends, such as rising housing demand and improved financing for lower-income buyers, were additional tailwinds for Skyline’s stock.”

T7. Taylor Morrison Home Corporation (NYSE:TMHC)

Number of Hedge Fund Shareholders: 29

 

There was a 32% jump in hedge fund ownership of Taylor Morrison Home Corporation (NYSE:TMHC) during Q1, vaulting the company into the top ten most popular homebuilders among hedge funds. Dmitry Balyasny’s Balyasny Asset Management (908,789 shares) and Michael Gelband’s ExodusPoint Capital (173,690 shares) were some of the funds to add TMHC positions to their 13F portfolios in Q1.

Taylor Morrison Home Corporation (NYSE:TMHC)’s home closings were down 8% year-over-year in Q1 to 2,541 homes, but the company nonetheless beat on both the top and bottom lines with its latest quarterly results, pulling in $1.66 billion in revenue and $1.74 in EPS, the latter beating estimates by $0.39 thanks to an 80 basis point improvement in gross margin.

Taylor Morrison Home Corporation (NYSE:TMHC) expects to close between 10,000 to 11,000 new homes in its current fiscal year at an average selling price of $625,000. TMHC closed the first quarter with a book value of $44.04 per share, only slightly beneath the stock’s current selling price of $47.03.

T7. KB Home (NYSE:KBH)

Number of Hedge Fund Shareholders: 29

 

The number of smart money shareholders of KB Home (NYSE:KBH) took a big dip in Q2, as sentiment towards homebuilders began to sour, but it quickly rebounded in the following quarter. Dmitry Balyasny’s Balyasny Asset Management (1.83 million shares) and Cliff Asness’ AQR Capital Management (1.67 million shares) are two of the biggest KBH shareholders among the funds tracked by Insider Monkey’s hedge fund database.

KB Home (NYSE:KBH) shares have gained 53% this year despite a big orders miss in Q4 that stoked fears about a pending slowdown in housing demand. The company had less than 700 new orders during 2022’s final quarter, down by 80% year-over-year and falling drastically short of analysts’ expectations for 2,000 new orders.

KB Home (NYSE:KBH)’s orders have improved recently however, with the company guiding for between 3,000 and 3,700 orders in the second quarter, and it had a hefty backlog of over 7,000 homes at the end of Q1. Barclays raised its price target on KBH to $56 from $51 last month and believes the market is underappreciating the effect that low housing inventory will have on housing starts.

T7. M/I Homes, Inc. (NYSE:MHO)

Number of Hedge Fund Shareholders: 29

 

There was a 21% jump in hedge fund ownership of M/I Homes, Inc. (NYSE:MHO) during Q1, pushing the stock to an all-time high in smart money shareholders. Ryan Tolkin’s Schonfeld Strategic Advisors was the most bullish new shareholder of MHO during Q1, buying 426,525 shares of the company.

M/I Homes, Inc. (NYSE:MHO)’s orders also took a hit in the fourth quarter, particularly November, but began rebounding December and January. Nonetheless, the sales value of its backlog had slid to $1.7 billion by the end of 2022 from $2.4 billion a year earlier. For the fourth quarter, M/I Homes hit record revenue of $1.22 billion and grew its operating margin by 1.4 percentage points to 25.7%.

The Miller Value Deep Value Strategy likes the long-term tailwinds for homebuilders like M/I Homes, Inc. (NYSE:MHO), as revealed in its Q1 2023 investor letter:

“During the quarter, our largest positive contributor was M/I Homes, Inc. (NYSE:MHO), with share prices up in excess of 30%. Homebuilders in general had been under pressure for much of last year due to marketplace concerns on the potential impact from higher mortgage rates and lower housing affordability. However, as mortgage rates pull back the positive demographics and lack of housing supply over the past 10 years provides a very favorable long-term supply/demand picture for the industry that should shorten the current downturn. M/I Homes is nicely diversified covering multiple home-type categories, with properties in valuable local communities in the Midwest and Southeast (#2 in the Jon Burns Real Estate Consulting Submarket Desirability Index). M/I Homes’ attractive asset base, strong balance sheet and ongoing valuation discount to peers should provide an attractive long-term reward/risk investment opportunity.”

6. Meritage Homes Corporation (NYSE:MTH)

Number of Hedge Fund Shareholders: 31

 

The number of funds that held long positions in Meritage Homes Corporation (NYSE:MTH) as of March 31 shot up by 19% quarter-over-quarter. Greg Poole’s Echo Street Capital Management (658,285 shares) and Steve Cohen’s Point72 Asset Management (131,371 shares) were two of the funds that went long MTH during Q1.

Meritage Homes Corporation (NYSE:MTH) had a strong fourth quarter, growing homes deliveries by 29% year-over-year and home closing revenue by 32%. The company’s orders also took a hit during the quarter however, sliding by 46%. After pulling in $7.09 in earnings per share during Q4, Meritage Homes rewarded shareholders by initiating a quarterly dividend of $0.27 per share, which currently yields 0.83%.

Sterling Partners Equity Advisors likes Meritage Homes Corporation (NYSE:MTH) based on the thesis that there will always be demand for new homes, as relayed in the fund’s Q4 2021 investor letter:

“Meritage Homes is a large public homebuilder in the United States focused on the entry-level and first move-up buyers in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee.

Meritage had their highest gross margin, 29.7%, and EPS, $5.25, during the third quarter of 2021. Management believes the housing market remains solid from continued demand with historically low interest rates and limited housing supply.

We own the stock on the simple thesis that our modern society creates a stable demand for new homes as people need shelter and want modern designs.”

 

D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and PulteGroup, Inc. (NYSE:PHM) rank among the 5 best home builder stocks to buy now. See why by clicking the link below.

 

Click to continue reading and see the 5 Best Home Builder Stocks To Buy Now.

 

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Disclosure: None. 11 Best Home Builder Stocks To Buy Now is originally published at Insider Monkey.