With Homebuilder Stocks On a Roll, Here Are Our 5 Top Picks Right Now

As momentum among homebuilder stocks is building up, this week’s blog post singles out the 5 best homebuilder stocks according to our fundamental analysis.

At the time of this writing, most homebuilder stocks are hitting new highs almost daily. Yet, valuations of TOL 📈, LEN 📈 or MHO 📈, trading at PE ratios of 12.5x, 9.9x and 8.6x respectively, remain in check.

The outlook for homebuilder stocks

The outlook for U.S. homebuilders is shaped by several key factors, all of which favor a continuation of their recent good fortunes.

Interest rates are coming down

Lower mortgage rates, driven down by lower Federal Reserve interest rates, are expected to make homes more affordable, particularly for first-time homebuyers. From a high of 7.8% one year ago, 30-year mortgage rates are projected to drop to below 6% before the end of the month.

Strong demand

Demographic trends, such as the demand for housing from Millennials entering their prime home-buying years, will continue to add to the housing shortage. At the same time, the US population will continue to grow by around 2 million per year.

Demand exceeds supply

Freddie Mac and other sources estimate that the U.S. is short 3.8 – 5.5 million housing units. Finally, persistent supply constraints—due to labor shortages, high material costs, and limited land availability—are likely to keep new home prices elevated, supporting homebuilder margins.

Profitability is up big – Valuation is not.

A lot has changed since 2019. Covid hit, Europe is seeing a major war and inflation reached levels last seen in the early 1980s…and homebuilders are a lot more profitable.

The major homebuilders managed to increase their margins by 50-100%. Yet, there is one thing that has not changed materially. It’s how homebuilder stocks are valued by the market. Most still trade at P/E ratios of around 10x. With margins substantially higher than 5 years ago, the best homebuilder stocks stand a good chance to benefit from multiple expansion – on top of buyoant growth prospects.

The 5 best homebuilder stocks right now

Leveraging Ziggma’s prorprietary intra-industry fundamental analysis, our research team produced a shortlist of the 5 best homebuilder stocks right now. To produce this list, our algorithm parsed through millons of data points to identify the companies beating their peers on:

✓ Growth

✓ Profitability

✓ Financial strength

These are our 5 best homebuilder stocks right now.

1. Lennar Corporation (LEN) 📈

Lennar Corporation is one of the largest homebuilders in the United States, specializing in constructing affordable, move-up, and active adult homes in major markets across the country. Founded in 1954, the company has diversified its offerings, including financial services, multifamily development, and land acquisition. Lennar is known for integrating technology and sustainability into its building practices, aiming to create innovative, energy-efficient communities. Headquartered in Miami, Florida, Lennar continues to expand its footprint while delivering value-driven homes tailored to various customer segments.

The market leader with a strong track record

With a marketcap of $52 billion Lennar is a heavyweight in the homebuilder industry. The company is very well managed and shows a strong track record of profitability. Lennar’s bottomline has experienced exponential growth over the past five years with earnings per share increasing by 2.4x and net operating cash flow up 3.5x to $5.2bn in 2023. Net profit is expected to grow by 4% and 13% in 2024 and 2025 respectively.

View key ratios and financials on LEN

2. Green Brick Partners (GRBK) 📈

Green Brick Partners is a diversified homebuilding and land development company based in Plano, Texas. The company operates primarily in Texas, Georgia, and Colorado, focusing on the development of residential communities.

David Einhorn’s big bet

Legendary investor David Einhorn, founder of Greenlight Capital, has been betting big on Green Brick Partners for some years. Einhorn’s investment is paying off handsomely, as we pointed out in our post Shareholder activism: Why should matter to you. By some estimates, Greenlight’s average cost is $10.

There is a lot to like about GRBK. The stock remains highly afforable at 9.7x 2024 earnings estimates. Sales momentum is strong with projected growth of 19% this year.

View key ratios and financials on GRBK

3. D.R. Horton (DHI) 📈

D.R. Horton, headquartered in Arlington, Texas, is a homebuilding company. It engages in the acquisition and development of land as well as the construction and sale of residential homes in 31 states and 98 markets under the names of D.R. Horton, America’s Builder, Express Homes, Emerald Homes, and Freedom Homes. The company constructs and sells single-family detached homes; and attached homes, such as town homes, duplexes, and triplexes.

Focus on profitability

D.R .Horton stands out for its margins and profitability. Last year’s net margin stood at 14% while return on assets reached a market-leading level of 15%. In spite of this, at 12x 2025 earnings, the company hardly trades at a premium to peers. Multiple expansion is clearly warranted in the case of DHI. We also like the company’s stewardship of capital. It bought back a total of $4bn in shares over the past five years.

View key ratios and financials on DHI

4. Pulte Group (PHM) 📈

PulteGroup is one of the largest home construction companies in the United States, specializing in a broad range of homes designed for first-time, move-up, and active adult buyers. Founded in 1950, the company operates under well-known brands like Pulte Homes, Centex, and Del Webb, serving diverse customer segments across major markets nationwide. Headquartered in Atlanta, Georgia, the company remains committed to delivering homes that cater to varying lifestyle needs while promoting sustainability and long-term value.

Best-in-class financial strength

Within this group of our 5 preferred homebuilder stocks, PulteGroup stands out as the most fiancially sound company. This is evidenced by a financial strength score of 98. The company had virturally zero net debt as of year and 2023.

We also like PulteGroup’s focus on first-time, move-up, and active adult homebuyers. This market segment is one of the most dynamic ones. PulteGroup is thus well-positioned to capitalize on long-term industry tailwinds from this segment.

Similar to its peers, PHM is managed for shareholder value. $3bn in share repurchases over the past 5 years are strong evidence of this.

View key ratios and financials on PHM

5. M/I Homes (MHO) 📈

M/I Homes, founded in 1976, is a leading national homebuilder known for constructing high-quality, energy-efficient homes across the United States. The company offers a variety of single-family homes and townhomes tailored to first-time, move-up, and luxury buyers, with a focus on design, craftsmanship, and customer satisfaction. Headquartered in Columbus, Ohio, M/I Homes is dedicated to delivering exceptional living experiences while prioritizing sustainability and innovation in their communities.

Attractive valuation – the least expensive stock in the group

M/I Homes trades at just 8.5x forward earnings. This makes it the least expensive stock major among homebuilder stocks. A valuation discount versus peers is not warranted. The company continues to grow against the backdrop of bright industry prospects. Its revenue is projected to grow by 9% and 5% in 2024 and 2025 respectively while earnings are forecast to grow by 22% and 5% over the same period. Even though the company is twice as profitable than in 2019, it still trades at the same valuation level, making the stock a strong prospect for gains driven by multiple expansion.

View key ratios and financials on MHO

The stars are aligned for the best homebuilder stocks

Next to AI, homebuilder stocks are currently one of the hottest investment themes in the market. Housing demand is strong, driven by demographic trends, such as millennials entering their prime homebuying years and a shortage of available homes. Interest rates are coming down, yesterday’s rate cut kicked off the rate-cutting cycle. Balance sheets and cash generation are strong supporting much-needed investment in energy-efficient designs and smart home technology. In short, the stars look aligned for homebuilder stocks.

Important Notice

This article is not investment advice. We cannot predict whether these stocks will go up or down. Our analysis is centered entirely on publicly available information. Please do your own homework prior to making an investment decision.