Are stocks getting expensive? You may be right. The S&P 500 Shiller cyclically adjusted price-to-earnings (CAPE) ratio is at its highest level since early 2022, when the market tanked. Not all stocks are cheap. Warren Buffett's Berkshire Hathaway has several good investments. Buy this cheap Buffett stock like crazy right now.
Growing profits Last year, Buffett or one of Berkshire's two other investment managers started a tiny interest in Lennar (NYSE: LEN). Berkshire also bought D.R. Horton and NVR shares, Lennar's competitors. Buffett sold D.R. Horton in the fourth quarter of 2023, but Berkshire still owns the other two homebuilders.
Lennar began producing homes in 1954. The company now builds multifamily rentals. It provides commercial real estate mortgage loans, title and closing services, and mortgage finance.
Business is booming for Lennar. The first quarter ending Feb. 29, 2024 had 21% year-over-year earnings growth. Total sales rose 13%. New home orders from Lennar rose 28%. The quarter ended with 16,270 homes and $7.4 billion in backlog.
Why now buy Lennar stock? One reason to buy Lennar stock today is its low valuation. Only 11.35 times forward earnings for the homebuilder. The S&P 500 trades at over 21 times projected earnings. The corporation has $5 billion cash. Lennar rewarded shareholders with its cash. The quarterly dividend was raised from $1.50 to $2 and the stock buyback program was boosted by $5 billion.
On Lennar's recent earnings call, Executive Chairman and co-CEO Stuart Miller identified seven variables that are "most often the foundation of a very strong housing market." High consumer confidence and low unemployment were considered. U.S. housing is scarce, especially for working-class families. Lennar is expanding its build-to-rent and single-family for-rent activities to solve this issue.
Fed insiders foresee 2024 interest rate reduction. In Lennar's Q1 earnings call, Miller said the business "believe[s] that pent-up demand will be activated." He said "[W]e will be well positioned and well prepared."
A few restrictions The Lennar has some obstacles. Higher interest rates and inflation are making new home prices too high and saving for down payments difficult for many Americans. Its multifamily segment keeps losing money. Other subsidiary businesses lose money.
Because inflation continues high, some worry the Fed won't cut rates this year. Lennar's expansion may slow without rate cuts. Even with these problems, I think Lennar's pros exceed its cons. In a market full with costly stocks, Lennar is cheap.
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