As the economy normalizes, the housing sector thrives, offering investors prolonged value growth. The article contains three homebuilder stocks that stand out in the market. These companies have not only weathered the adversities of fluctuating interest rates, inflation, and housing demands but have emerged stronger. It showcases strategies that tap into the pulse of the modern housing market. This has led to the rise of the best homebuilder stocks to buy.
The first stock, a leading name in the industry, has strategically aligned its cash flow with shorter construction cycles. It addresses the pressing need for affordable homes. With its laser-focused approach to mature markets and innovative lot strategies, the second one has proven resilient in facing challenges. Meanwhile, Third’s success is firmly anchored in its Smart Series line of affordable homes. It is capitalizing on the ever-growing demand for diverse housing options.
The article delves into the intricacies of these top-tier homebuilder stocks, exploring their strategies, strengths, and potential for growth. As August unfolds, these companies offer investors the potential of the real estate sector itself.
DR Horton (DHI)
DR Horton (NYSE:DHI) has been able to match EPS to cash flow more effectively. The improvement can be attributed to the company’s focus on reducing cycle times in construction. It results in reduced capital tied up in homes under construction. In particular, the ability to turn homes around faster and reduce inventory levels has contributed to a better allocation of resources.
Despite high mortgage rates and inflation, DR Horton consistently increased its net sales orders. The growth is attributed to the limited supply of affordable homes and favorable housing demand demographics. DR Horton’s strategic approach of supplying more homes to meet this demand while enhancing capital efficiency
Furthermore, the company’s emphasis on market share expansion is evident through its consistent community growth. The homebuilding segment saw sequential increases in active selling communities. DR Horton’s flexible lot supply, diverse product offerings, and experienced operators contribute to its ability to seize opportunities across various markets.
Moreover, DR Horton’s expansion into the multi-family rental platform provides additional scale and leverage. It allows the company to lower overall construction costs. This diversification enhances DR Horton’s resilience and capacity to manage market fluctuations. This helps make it one of those best homebuilder stocks to buy.
Additionally, the company’s ability to buy down mortgage rates has proven effective in attracting buyers, especially in an environment of rising rates. This incentive might continue to drive sales significantly and sustain demand for DR Horton homes. Also, the company’s flexible strategy of purchasing finished lots from third-party developers as well as developing lots in-house gives them the advantage of adapting to market conditions and optimizing costs.
Finally, DR Horton’s focus on smaller square footage offerings aligns with affordability trends in the housing market. By catering to buyers’ budget constraints while still providing desirable square footage, the company aims for a competitive edge.
NVR (NVR)
NVR (NYSE:NVR) is a leading player in constructing and selling single-family detached homes, townhomes, and condominium buildings. The company can strategically benefit from long-term growth factors despite recent difficulties, like declining demand due to rising mortgage rates and affordability concerns.
Fundamentally, NVR’s business strategy, focused on mature markets and a conservative lot acquisition approach, provides a strong foundation for resilience and growth. The company avoids the financial risks of direct land ownership and development by acquiring finished lots from third-party developers using Lot Purchase Agreements (LPAs). This strategy minimizes market risk, optimizes inventory turnover, and enhances return on equity and capital.
NVR’s focus on maintaining a leading market position in each region it serves further strengthens its competitive advantage. By gaining efficiencies and competitive advantages, NVR can mitigate the effects of regional economic cycles and capitalize on growth opportunities within its markets. All in all, it’s one of those best homebuilder stocks to buy.
As of 2022, NVR controlled approximately 131,900 lots. It included approximately 125.1k lots under LPAs with third parties and an investment of approximately $27.2k in five Joint Venture Limited Liability Corporations (JVs), expected to produce around 5.3k. The company also owned land with a carrying value of approximately $27.1k, intended for development into approximately 1.9k finished lots.
In addition to its established lot acquisition strategy, NVR is exploring strategic alternatives. This includes joint venture arrangements and direct land development under specific circumstances to capitalize on compelling opportunities. Lastly, the company’s controlled properties under contract with landowners are expected to yield approximately 19.3k lots, demonstrating NVR’s future growth.
M/I Homes (MHO)
For M/I Homes (NYSE:MHO), one of the critical indicators of long-term success is the growth of new contracts signed.
Fundamentally, the company’s focus on its Smart Series line of affordable homes has proven successful. With around 55% of the business driven by the Smart Series, there’s room for continued growth. It could reach 50% to 60% in the foreseeable future. This demonstrates M/I Homes’ ability to cater to many homebuyers, from first-time to move-up buyers. Expanding stores and community openings in H2 2023 will boost sales and growth. As a result, it aligns with the company’s efforts to catch up with house construction.
Market conditions are favorable for M/I Homes. This is due to low inventory levels and sustained demand for new homes due to favorable mortgage rates. The company has a strong presence in various markets. It includes expansions into Nashville and Fort Myers-Naples. Regarding acquisition opportunities, the focus primarily remains on organic growth, capitalizing on the momentum and expertise built within its existing markets.
In a landscape where digital marketing and online presence play a pivotal role, M/I Homes is making substantial investments to optimize its online strategies. The company’s dedicated efforts have increased lead generation and customer engagement.
M/I Homes has been expanding its reach by operating in 15% more communities on average than a year ago. Also, the sales pace of 3.7 homes sold per community per month indicates healthy demand and a well-positioned product portfolio. Finally, streamlining the construction cycle time can lead to faster home completions and deliveries, contributing to overall customer satisfaction. This helps make it one of the best homebuilder stocks to buy.
On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.