Housing
Low Rates Driving Homebuilders: 3 UBS Top Picks to Buy Now
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The Wall Street bears said that the positive momentum in the homebuilding sector would end as the Federal Reserve started to raise rates and mortgage rates started to push higher. That made good sense until rates that govern where mortgages are set dropped back to the same level they were at this time a year ago, and many think that the Fed may only raise rates once more this year.
In a new research report, UBS believes the housing market is moving to more volume-based growth, driven by the re-emergence of entry-level and first-time buyers. While UBS thinks that the overall rate of home price appreciation will start to ease, the report notes that it is easier to match supply to demand in more peripheral locations. The analysts look for this to play out over the next 18 to 24 months, giving the firm an optimistic outlook on the housing sector as a whole.
Three companies are the top picks in the sector at UBS, and all are rated Buy at the firm.
Lennar
This company remains a top pick and is well set in the entry-level market. Lennar Corp. (NYSE: LEN) is one of the nation’s largest builders of quality homes for all generations. The company builds affordable, move-up and retirement homes, primarily under the Lennar brand name.
Lennar’s Financial Services segment provides mortgage financing, title insurance and closing services for both buyers of the company’s homes and others. Lennar’s Rialto segment is a vertically integrated asset management platform focused on investing throughout the commercial real estate capital structure. Lennar’s Multifamily segment is a nationwide developer of high-quality multifamily rental properties.
Lennar investors receive a miniscule 0.35% dividend. The Thomson/First Call consensus price target for the stock is set at $54.44. The stock closed on Monday at $47.78 per share.
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