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Is It Time to Buy Homebuilding ETFs Following Warren Buffett?
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Warren Buffett's repute as an investment achiever is known to all. Investors worldwide pay close attention to his strategies. No wonder, his recent 13F filing is under the spotlight. In the second quarter, Buffett’s company Berkshire Hathaway established positions in three new stocks: NVR (NVR - Free Report) , Lennar (LEN - Free Report) , and D.R. Horton Inc. (DHI - Free Report) . What's particularly intriguing about this trio is that all three belong to the homebuilding industry.
While it's essential for investors to conduct thorough research before making any investment decisions, drawing inspiration from Warren Buffett's investment moves is a time-honored practice. Notably, these three stocks have positions in the homebuilding ETFs iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) . Homebuilders have been posting impressive gains throughout the year. Overall, XHB is up 39.5% this year and up 18.5% in the past three months while ITB has advanced 16.2% in the past three months.
Does Buffett's Approval Indicate Homebuilders' Value Proposition?
The latest homebuilding move indicates that Buffett and his experienced portfolio managers possess a strong conviction in the potential of the industry as a whole. Buffett is a fan of value investing. Berkshire’s acquisition of three stocks despite a great rally this year is tell-tale sign of the remaining value quotient in the homebuilding space.
For instance, D.R. Horton boasts a forward price/earnings (P/E) ratio of 10.15X, Lennar is trading at 9.80 times earnings, and NVR's price-to-earnings multiple stands at 13.99, way lower than the S&P 500 P/E of 20.00X. Moreover, three stocks have a Zacks Rank #1 (Strong Buy).
Homebuilding ETFs to Buy?
Homebuilding ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) have a Zacks Rank #2 (Buy). The fund ITB and XHB have a P/E ratio of 7.60X and 12.20X. The fund ITB invests about 35% in the above-mentioned three stocks while the fund XHB invests about 10.5% in those three stocks. Those who fear the company-specific risks, may invest in homebuilding ETFs like ITB and XHB (read: Housing ETFs to Gain Despite a Dip in New Home Sales: Here's Why).
These funds underperformed last year, which helped the duo rally hard this year amid favorable operating environment. Though homebuilder sentiment dropped for the first time in seven months, dropping 6 points to 50, according to the National Association of Home Builders/Wells Fargo Housing Market Index, the situation may improve if the U.S. economy can avoid a recession (which is a likely scenario) and inflation continues to soften.
Agreed, high home prices are still a concern. But investors should not forget that demand resumed after the initial surge in mortgage rates, as buyers became used to a new normal interest rate environment.
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Is It Time to Buy Homebuilding ETFs Following Warren Buffett?
Warren Buffett's repute as an investment achiever is known to all. Investors worldwide pay close attention to his strategies. No wonder, his recent 13F filing is under the spotlight. In the second quarter, Buffett’s company Berkshire Hathaway established positions in three new stocks: NVR (NVR - Free Report) , Lennar (LEN - Free Report) , and D.R. Horton Inc. (DHI - Free Report) . What's particularly intriguing about this trio is that all three belong to the homebuilding industry.
While it's essential for investors to conduct thorough research before making any investment decisions, drawing inspiration from Warren Buffett's investment moves is a time-honored practice. Notably, these three stocks have positions in the homebuilding ETFs iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) . Homebuilders have been posting impressive gains throughout the year. Overall, XHB is up 39.5% this year and up 18.5% in the past three months while ITB has advanced 16.2% in the past three months.
Does Buffett's Approval Indicate Homebuilders' Value Proposition?
The latest homebuilding move indicates that Buffett and his experienced portfolio managers possess a strong conviction in the potential of the industry as a whole. Buffett is a fan of value investing. Berkshire’s acquisition of three stocks despite a great rally this year is tell-tale sign of the remaining value quotient in the homebuilding space.
For instance, D.R. Horton boasts a forward price/earnings (P/E) ratio of 10.15X, Lennar is trading at 9.80 times earnings, and NVR's price-to-earnings multiple stands at 13.99, way lower than the S&P 500 P/E of 20.00X. Moreover, three stocks have a Zacks Rank #1 (Strong Buy).
Homebuilding ETFs to Buy?
Homebuilding ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) have a Zacks Rank #2 (Buy). The fund ITB and XHB have a P/E ratio of 7.60X and 12.20X. The fund ITB invests about 35% in the above-mentioned three stocks while the fund XHB invests about 10.5% in those three stocks. Those who fear the company-specific risks, may invest in homebuilding ETFs like ITB and XHB (read: Housing ETFs to Gain Despite a Dip in New Home Sales: Here's Why).
These funds underperformed last year, which helped the duo rally hard this year amid favorable operating environment. Though homebuilder sentiment dropped for the first time in seven months, dropping 6 points to 50, according to the National Association of Home Builders/Wells Fargo Housing Market Index, the situation may improve if the U.S. economy can avoid a recession (which is a likely scenario) and inflation continues to soften.
Agreed, high home prices are still a concern. But investors should not forget that demand resumed after the initial surge in mortgage rates, as buyers became used to a new normal interest rate environment.