Berkshire Hathaway Adds These Housing Stocks, Part 2

That the Warren Buffett/ Charlie Munger-led firm would go to the housing sector for names in which to place money seems odd given the steady rise in interest rates —including the 30-Year fixed mortgage rate. The old pros in Omaha surely have greater wisdom than the rest of us but let’s examine the positions.

Lennar
LEN
is the second home construction stock that was recently added to the Berkshire Hathaway
BRK.B
fund. The earnings growth over the past 5 years is +36% and this year’s earnings are up by 10.30%. The stock trades with a price-earnings ratio of just 7.98 and at just 1.33 times book value. Shareholder equity greatly exceeds the amount of long-term debt. Lennar pays a dividend of 1.28%.

In mid-July, Raymond James upgraded its rating on the stock from “market perform” to “outperform.” In June, the analysts at Deutsche Bank issued a “sell” rating on Lennar with a price target of $105.

The daily price chart looks like this:

The stock peaked in July at just above $132.50 and has fallen quickly to the current $117.05. The drop below the 50-day moving average (the red line) is accompanied by heavy volume as you can see by the red-ish bar below prices. The relative strength index (RSI, below the price chart) appears about to drop into the “oversold” level.

NVR – NVR, Inc. Stock Price and Quote (finviz.com)

NVR’s is the third residential construction addition to the Berkshire Hathaway portfolio. It’s trading with a price-to-book ratio of 4.73 and the price-earnings ratio sits at 12.85. These metrics make it a little less of a value stock than the above two adds. Earnings are up by 53% this year and up by 28.30% over the past 5 years. NVR does not pay a dividend, another indicator of “not quite a value stock.”

The daily price chart is here:

It’s also dropped to below the 50-day moving average although the volume does not seem to be heavy.

The SPDR S&P Homebuilders ETF is the benchmark for the sector. Here’s the daily price chart:

The uptrend from the beginning of the year for this sector is over. After hitting a peak in July of $85, the ETF has dropped back to $79.38 and now trades below its 50-day moving average.

The 30-Year fixed mortgage rate may have something today with the slide in the housing stocks — it’s up at 7.09%. That’s higher than it’s been for over 20 years.

Note that the CBOE 10-Year Treasury yield is now back up to its 2022 high just under 4.40% (the point-and-figure chart below shows basis points):

It’s certain that Berkshire Hathaway is looking at the long-term. Still, in the past, the firm has occasionally taken positions and then unloaded them before a year is up. We’ll see.