Daily Stock Pick: January 26th, 2023

One of the hardest hit sectors last year, real estate, has recently been a bright spot in markets thanks to fast-falling mortgage rates. According to bankrate.com, the national average for a 30-year fixed mortgage hit a high of 7.2% on November 11th and has since pulled back to around 6.4%. Homebuilders have been benefiting from the deep dive and should continue to do so as long as mortgage rates continue lower. 

According to some Wall Street pros, we may have a “once-in-a-cycle opportunity” to cash in on the early-cycle outperformance phase of homebuilder stocks, begging the question – which home builders stand to benefit the most from the lower-mortgage-rate environment? Our stock recommendation for today is one of the best-positioned names from the group for the year ahead.     

Founded in 1978 in Fort Worth, Texas, D.R. Horton (DHI) has operations in 106 markets in 33 states across the United States and closed 83,518 homes in its homebuilding and single-family rental operations during its fiscal year ended September 30th, 2022. 

The company is engaged in the construction and sale of high-quality homes through its diverse brand portfolio, including Emerald Homes, Express Homes, and Freedom Homes, with sales generally ranging from $200,000 to over $1,000,000. It also provides mortgage financing, title services, and insurance agency services for its homebuyers through its mortgage, title, and insurance subsidiaries. 

In the third quarter, D.R. Horton missed analyst estimates for earnings and revenue due to the cooling housing market. From June to September 2022, the company’s total homebuilding lot position decreased by 25,000 lots, but the company has been actively managing the lot and land pipeline and investments in lots, land, and development to meet needs during this transition in the housing market. 

Impressive performance, industry-leading market share, a solid acquisition strategy, a well-stocked land supply, lots, and homes, and affordable product offerings across multiple brands are expected to drive growth. D.R. Horton’s earnings are expected to grow 1.7% in fiscal 2023. The stock has gained 27% over the past six months, outperforming the industry’s 19% rise. DHI stock has a solid Buy rating from the pros offering recommendations. A median price target of $109 represents an increase of 14% from Thursday’s opening price.