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 PulteGroup, Inc. (NYSE:PHM) 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).
Construction workers laying bricks during the residential development of multiple lots.
PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Holders: 35
PulteGroup, Inc. (NYSE:PHM) is one of America’s leading homebuilders which was founded in 1950 and has delivered almost 750,000 homes across the nation. With operations in over 40 major cities, the company has grown to become one of the largest US homebuilders. The homebuilder meets the needs of first-time, move-up, and active-adult homebuyers through its brands including Pulte, Centex, Del Webb, DiVosta, American West, and John Wieland Homes and Neighborhoods. Through its financial services segment, the company also provides mortgage financing and title agency services.
PulteGroup serves as one of the industry leaders which is uniquely positioned to serve buyers at every stage of their lives. The Del Webb and DiVosta brands are the recognized leaders in serving over 55 buyers. Simultaneously, first-time homebuyers can seek value for their money in a Centex home and the luxury homebuilder John Wieland Homes and Neighborhoods offers new construction and neighborhoods in some of the most desirable locations. Over the past 5 years, Pulte has delivered higher returns and significantly stronger cash flows despite a slower growth trajectory.
2024 has proved to be a good year for PulteGroup, Inc. (NYSE:PHM) as the homebuilder continues to start homes at a pace that is consistent with closing 31,000 homes this year. Highlights from the firm’s second quarter include closings increasing by 8% to 8,097 homes, average sales price increasing by 2% to $549,000, and home sale gross margin increasing by 30 basis points to 29.9%. This rise in closings, average sales price, and gross margin resulted in a 19% rise in earnings.
The firm’s market position is backed up by its diversified portfolio, robust delivery and financials, strong cash flows, and the existing industry environment. Additionally, PulteGroup, Inc. (NYSE:PHM) is currently trading at 11 times its forward earnings, a discount of 34.36% to the sector. As of Q2, it is held by 35 hedge funds while Greenhaven Associates is the most prominent shareholder in the company.
Overall PHM ranks 6th on our list of the best home builder stocks to buy. While we acknowledge the potential of PHM 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 PHM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.