It's that time once more! The period when the main street gains an insider's perspective into the actions of some of the highest-performing hedge funds and renowned investors. Fund managers overseeing assets of at least $100 million are required to publicly disclose their holdings to the SEC each quarter using Form 13F.
Among all the funds filing form 13F each quarter, none is more eagerly awaited than Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.B). In the second quarter, the Oracle of Omaha made significant adjustments to Berkshire's portfolio. Notable among these adjustments was a 70% reduction in its stake in Activision Blizzard (NASDAQ: ATVI), coupled with a 5% increase in its holdings of Occidental Petroleum (NYSE: OXY).
However, what truly captured attention were the new acquisitions made by Buffett's Berkshire, particularly in the realm of homebuilders. Berkshire acquired new positions in three U.S. homebuilders during the second quarter for almost $800 million. This isn’t the first time Buffett has taken stakes in multiple companies operating in the same industry. Previously, he has done the same with the airlines, banks, and railroad industries.
Although, by Buffett’s standards, the initial stakes are still relatively small, should investors look to join the legendary investor in gaining exposure to U.S. homebuilders?
Three U.S. Homebuilders That Buffett Just Bought
Out of the three homebuilders that Buffett’s Berkshire purchased in the second quarter, D.R. Horton was the largest. Berkshire purchased about 6 million shares of DHI stock worth about $726.5 million. DHI has a market capitalization of $39.69 billion and an attractive P/E ratio of 8.34, with a dividend yield of 0.85%. Year-to-date shares of DHI are up almost 32%.
D.R. Horton, Inc. is a US-based homebuilding company operating across multiple regions in the country. It specializes in acquiring and developing land, constructing and selling residential homes in various markets and states.
The company offers a variety of housing types, including single-family detached homes, townhomes, duplexes, and triplexes. It also provides mortgage financing, title insurance, and examination services.
Along with an attractive valuation and current housing environment of low inventory, DHI has a favorable analyst rating of Moderate Buy, based on nineteen analyst ratings. Of the nineteen analyst ratings, only one has the stock as a Sell, eleven as a Buy, and seven as a Sell. The consensus analyst price target is $35.50, predicting a 15.51% upside for the stock.
Berkshire purchased just over 11,000 shares of NVR in the second quarter for almost $71 million, making the acquisition its second largest out of its three U.S. homebuilders acquisitions. Year-to-date, like DHI, shares of NVR have impressed, up almost 32%. The company has a market capitalization of $19.82 billion and a P/E ratio of 12.98.
NVR, Inc. is a US-based homebuilder operating within the United States. The company has two main segments: Homebuilding and Mortgage Banking. It specializes in constructing and selling single-family detached homes, townhomes, and condominium buildings under the brand names Ryan Homes, NVHomes, and Heartland Homes.
Although the stock, based on four analyst ratings, has a Moderate Buy rating, analysts are predicting a downside for shares of the Homebuilder, with a consensus price target of $5,650, predicting a 7% downside. Of the four ratings, three are a Buy, and one is a Sell, with a high prediction of $7,200 and a low prediction of $4,400.
Lennar is the third and final U.S. Homebuilding company that Berkshire acquired a stake in, in the second quarter. During the second quarter, Berkshire purchased 152,572 shares of Lennar’s Class B preferred stock for $17.2 million.
The company has a market capitalization of $30.62 billion, with the Class B stock offering a dividend yield of 1.41% and a desirable P/E ratio of just 7.27. Year-to-date, shares of Lennar’s common stock (NYSE: LEN) are up almost 30%.
Lennar Corporation is a major homebuilder in the United States, primarily operating under the Lennar brand. The company operates through various segments, including Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar Other. Lennar engages in constructing and selling single-family attached and detached homes and purchasing, developing, and selling residential land.
Regarding Lennar’s common stock, analysts see a significant upside for the homebuilder. Based on fifteen analyst ratings, the consensus price target is $127.20, which predicts an 8.72% upside. However, unlike the Moderate Buy rating of the above two stocks, Lennar has a consensus rating of Hold, based on fifteen analyst ratings.
Should You Follow Buffett?
Homebuilder stocks epitomize a classic value strategy in Buffett's playbook.
Although the increase in interest rates has escalated mortgage costs for homebuyers and momentarily slowed down new home construction, Buffett's focus could be on the horizon, anticipating a potential convergence of diminished housing inventory and lower mortgage rates in 2024 and thereafter.
Although the acquisitions are relatively modest by Buffett's standards, it's worth watching to see if he keeps buying more in the coming months and quarters.