5 Residential Construction Companies Gurus Agree On

Homebuilding sentiment reaches a year-to-date high

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Sep 17, 2019
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In light of homebuilding sentiment reaching a year-to-date high, five residential construction companies most broadly held by gurus according to the Aggregated Portfolio are Lennar Corp. (LEN, Financial), D.R. Horton Inc. (DHI, Financial), PulteGroup Inc. (PHM, Financial), NVR Inc. (NVR, Financial) and Meritage Homes Corp. (MTH, Financial).

Housing Market Index reaches year-to-date high, but concerns remain

The National Association of Home Builders / Wells Fargo Inc. (WFC, Financial) Housing Market Index reached 68 for September, up 1 point from the September 2018 reading of 67 and the highest reading for the year so far. The Housing Market Index considers three components: current sales conditions, traffic of prospective buyers and sales expectations. The NAHB calculates a seasonally-adjusted index using scores for each of the three components. Scores above 50 suggest overall good sentiment, while scores below 50 suggest overall poor sentiment.

NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut, said low interest rates and solid demand continue fueling builder sentiment despite headwinds stemming from “ongoing supply-side challenges.” However, NAHB Chief Economist Robert Dietz added that the ongoing trade dispute between the U.S. and China increased concern among builders: The NAHB Home Building Geography Index indicates that a slowdown in the manufacturing sector contributed to a deceleration in home construction in certain areas despite growth in rural and exurban areas.

Lennar

Fourteen gurus own shares of Lennar with a combined weight of 20.50%. Gurus with large holdings of the company include Glenn Greenberg (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).

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The Miami-based homebuilder targets first-time, move-up and active adult homebuyers under the Lennar brand name. According to GuruFocus, Lennar’s operating margins are outperforming 67.44% of global competitors despite contracting approximately 3.4% per year on average over the past five years.

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D.R. Horton

Twelve gurus own shares of D.R. Horton with a combined weight of 9.71%. Gurus with large holdings of the stock include Steve Mandel (Trades, Portfolio)’s Lone Pine Capital and George Soros (Trades, Portfolio)’ Soros Fund Management.

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The Arlington, Texas-based company offers single-family detached homes in 78 markets across 26 states. GuruFocus ranks D.R. Horton’s financial strength 6.2 out of 10 and profitability 8 out of 10 on several positive indicators, which include a strong Altman Z-score of 5.13, expanding operating margins and a return on assets that outperforms 85.97% of global competitors.

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PulteGroup

Ten gurus own shares of PulteGroup with a combined weight of 2.39%.

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The Atlanta-based homebuilder operates in 47 markets across 25 states. GuruFocus ranks PulteGroup’s profitability 9 out of 10 on several positive investing signs, which include expanding profit margins, a strong Piotroski F-score of 8 and a three-year revenue growth rate that outperforms 86.70% of global competitors.

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NVR

Nine gurus own shares of NVR with a combined weight of 13.33%.

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The Reston, Virginia-based homebuilder operates in 28 metro areas in 14 states east of the Mississippi River. GuruFocus ranks NVR’s financial strength and profitability 8 out of 10 on several positive signs, which include a strong Piotroski F-score of 7, a robust Altman Z-score of 12.05 and returns that are outperforming over 96% of global competitors.

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NVR’s business predictability ranks four stars on consistent revenue and earnings growth over the past 10 years.

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Meritage

Seven gurus own shares of Meritage with a combined weight of 3.24%.

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The Scottsdale, Arizona-based homebuilder operates primarily in the western, southern and southeastern parts of the U.S. GuruFocus ranks the company’s profitability 8 out of 10: Operating margins are near a 10-year high of 9.94% despite underperforming 50.67% of global competitors. Additionally, Meritage has a strong Piotroski F-score of 8.

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Disclosure: No positions.

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