Data from the Department of Commerce released on Tuesday
signaled a potential turnaround in the housing market. The
department found that the number of building permits in February
increased 4.6% from January and 33.8% from February of 2012, to a
seasonably adjusted 946,000. Housing starts also increased 0.8%
and 27.7% over the same periods to 917,000 - their highest levels
The information followed another study in February which showed
that these new homes are selling faster, too. New housing
inventory in recent months fell to historical lows, and the
median number of months a new home sits on the market is 4.6, a
68% decline from their March 2010 highs.
The potentially nascent recovery of the home building market that
was decimated in the mortgage crisis of 2008 and 2010 has
attracted a number of the investors GuruFocus tracks. The stocks
from the home building sector that the most of these investors
are currently holding, according to the All-in-One Screener, are:
Toll Brothers Inc. (
), Lennar Corp. (
), PulteGroup Inc. (
), Interface Inc. (
) and DR Horton Inc. (
Toll Brothers Inc. (
Toll Brothers is the most-held stock of the home building sector,
with 12 gurus having positions.
has by far the largest position. His 1,381,748 shares equal 4.2%
of his assets managed. He also more than doubled his stake in the
fourth quarter, after selling for four straight quarters while
the price went up.
, who owns 780,680 shares, has the second-largest position, equal
to 0.56% of his assets managed. He has been adding to his stake
quarterly since he initiated it in the fourth quarter of 2011.
Two Gurus initiated stakes in the fourth quarter -
Founded in 1967, Toll Brothers is a luxury home builder with
projects in 19 states, and its stock has rallied almost 51% over
the past 52 weeks. It trades for $36.36 per share on Wednesday.
Toll Brothers' financial results for the quarter ended Jan. 31,
2013, included a surge in net income to $4.4 million, or $0.03
per share, from a net loss of $2.8 million, or $0.02 per share in
the prior-year quarter. Pre-tax inventory write-downs were also
lower, at $0.7 million, from $8.1 million. The company had 746
home building deliveries, for a 32% increase in revenue to $424.6
million, while gross margins increased 0.2% to 23.4%.
In addition to increased demand for its homes, Toll Brothers is
seeking to supplement its income by starting new rental apartment
and high-quality student housing projects which should begin
generating income beginning in fiscal year 2015.
Robert I. Toll, the company's executive chairman, commented on
the housing recovery in its first quarter statement:
"After seven years of trepidation, buyers are reentering the
housing market and household formations are increasing. With low
inventories of houses for sale and a limited supply of approved
lots, home prices are rising. Buyers who need to sell one home to
move to the next one are more willing and able to make the move.
These factors plus record-low interest rates are boosting the
housing market's recovery. As housing continues to recover and
home prices rise, personal and bank balance sheets get stronger,
which should spur additional economic activity and more housing
Toll Brothers has a balance sheet with approximately $1.03
billion in cash at its first fiscal quarter's end, compared to
$854 million in the prior-year quarter. Long-term liabilities and
debt also increased to $2.16 billion, from $1.72 billion.
Lennar Corp. (
Lennar is almost as widely held as Toll Brothers, with 11 gurus
claiming positions in it. Of these, the top holder is Ken
Heebner, who holds 4.85 million shares, or 4.9% of his assets
managed. His most recent activity was adding 790,000 shares in
the fourth quarter of 2012. He began the position in the fourth
quarter of 2011.
Second to him is John Keeley, with 657,961 shares, or 0.57% of
his assets managed. He initiated the position in the third
quarter of 2011, added to it quarterly since then and reduced
23,300 shares in the fourth quarter after the price more than
doubled from his initial average purchase price.
Keeley commented on his home building positions in his fourth
quarter letter, saying:
"At a company specific level, we have been impressed with
), Toll Brothers (
) and Lennar (
). The swift collapse in demand forced each of these companies to
undergo significant restructuring. Like many of our holdings in
this low interest rate environment, many companies in this
industry have beneficially refinanced a substantial amount of
debt and strengthened their capital structures. They have also
improved their inventory of homes by liquidating poorly
performing holdings, and strengthened the performance of many
existing communities. With a leaner structure, reduced costs, and
an increase in demand, we continue to believe the industry has
substantial upside. Lastly, after a substantial plunge in 2008
and 2009, new home starts are beginning to climb off decade lows,
which we believe is a significant catalyst for future gains and
momentum. However, despite our long-term enthusiasm for the
industry, near-term valuations are stretched at current earnings
levels, and we responded by reducing exposure to some positions
during the most recent quarter."
Gurus for whom Lennar was a new buy in the fourth quarter were
Stanley Druckenmiller and Steven Cohen, both at marginal sizes.
The only one disposing of his position was George Soros.
Founded in 1954, Lennar builds quality homes and affordable
retirement homes and provides mortgage financing through its
financial services branch. Its stock advanced almost 65% over the
past year and trades for $43.78 per share on Wednesday - close to
a five-year high.
Lennar released its first quarter 2013 results on Wednesday. The
company had increased net earnings of $57.5 million, or $0.26 per
diluted share, compared to $15.0 million, or $0.08 per diluted
share in the prior-year quarter. Revenue increased 37% to $989.9
Lennar's new home deliveries also increased 28%, new orders were
up 34% and it was able to increase the average price for the
homes in its backlog 13% by quarter-end. Gross margins on home
sales were up 120 basis points to 22.1%.
Currently, Lennar has a P/E of 12.3, P/B of 2.3 and P/S of 2.21,
which is close to a 10-year high.
PulteGroup Inc. (
Seven gurus are holding PulteGroup, with Ken Heebner and John
Keeley again having the largest positions, at 4.2% and 0.74% of
their total assets managed, respectively. Ken Heebner amassed a
stake of 8.87 million shares in the third and fourth quarters of
2012. John Keeley has been trading the stock since 2009, sharply
increasing his in the fourth quarter of 2011. In the past two
quarters, he has reduced the position to 1,823,080 shares.
Jim Simons, Ronald Muhlenkamp and Steven Cohen also added to
their Pulte holdings in the fourth quarter, while Charles Brandes
and Ray Dalio sold shares, and Bruce Kovner sold out.
John Keeley commented on his PulteGroup transactions in his
fourth quarter letter:
"PulteGroup Inc. (
) was a significant contributor over the past year and was easily
the top performing security in the portfolio. The homebuilder
climbed over 292 percent over the trailing twelve months and
contributed 119 basis points to the portfolio over that time
period. The company has been effective at controlling costs and
strategically improving many of its existing communities. Despite
a number of positive economic reports related to housing, it
appears that the rally in the industry is getting very little
respect. We continue to see sentiment indexes improving rapidly,
tight supply which is creating an attractive supply-demand
imbalance, and improvements in pricing. Although we anticipate
some volatility during the housing recovery, with interest rates
at record lows and the Federal Reserve directly supporting rates
with their recent announcement, we continue to expect progress in
this area and have positioned the portfolio accordingly with
Pulte and a number of other positions with exposure to the
Pulte is one of the nation's largest home builders with a
versatile product offering and brands that include Centex, Pulte
Homes and Del Webb. It stock had a 133% run up over the past year
to $21.40 per share on Wednesday.
The company announced $59 million, or $0.15 per share, in net
income for the quarter ended Dec. 31, 2012, up from $14 million,
or $0.04 per share, in the prior-year quarter. The fourth quarter
included $49 million in charges for potential future loan
repurchase obligations, and $32 million for the repurchase of
$496 million of senior notes. The prior-year quarter's results
were affected by $27 million in various charges.
Total revenues increased to $1.57 billion from $1.26 billion, as
closing increased 20%, the average selling price rose 6% and new
orders increased 27%. Its gross margin improved 320 basis points
to 21.8%, and it trimmed costs by 40 basis points in SG&A.
After paying down $600 million in senior notes in the quarter,
Pulte had $2.51 billion in long-term liabilities, and no long
term debt, compared to $3.09 billion in long-term debt in the
prior-year quarter. It boosted its cash position to $1.41
billion, compared to $1.08 billion.
Pulte currently has a P/E of 38.3, P/B of 3.7 and P/S of 1.66, of
which all three are close to 10-year highs.
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