Some of the main pillars of Warren Buffett’s investing philosophy include the merits of patience and taking the long-term view. One of his recent big investments appears to reflect that strategy.
Against a backdrop of rising mortgage rates, declining home sales and various industry headwinds, during Q2, Buffett’s Berkshire Hathaway opened a new position in D.R. Horton (NYSE:DHI), which happens to be the US’s biggest homebuilder. Buffett purchased 5,969,714 DHI shares, which at the current share price are worth almost $625 million.
It’s safe to say that given Buffett’s unrivalled decades-long success in the investing world, his own reasons for making new purchases are based on plenty of in-depth research and he does not need anyone’s seal of approval, yet his evidently bullish sentiment is being echoed right now by banking giant Goldman Sachs.
Firm analyst Susan Maklari has been reassessing her stance on DHI and has come to some positive conclusions.
“In our view,” the analyst said, “limited for-sale inventory, constrained affordability, and greater velocity in mortgage rates should drive increased consumer preference for quick move-in homes. We look for D.R. Horton to leverage its operating acumen against this, driving upside to results. More specifically, we highlight the focus on the entry level, while maintaining a steady starts pace, allowing for share gains.”
Not to mention, further mitigating risk, Maklari notes that the company also options 75% of lots, the highest in her coverage, and within the broader peer group, second only behind NVR.
“Although macro uncertainty and seasonality will likely be a near-term overhang,” Maklari goes on to add, “we believe this is fully reflected in the valuation.”
As such, Maklari upgraded her rating on DHI from Neutral to Buy and set a $131 price target, implying a potential upside of 25% from current levels. (To watch Maklari’s track record, click here)
Elsewhere on the Street, based on an additional 11 Buys, 4 Holds and 1 Sell, the stock claims a Moderate Buy consensus rating. The average target is higher than Maklari will allow, and at $142.13, suggests shares will surge ~36% in the year ahead. (See DHI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
