Summary
D.R. Horton is fair value with a PE of 10 and long-term growth trends in the 12-17% range per annum.
DHI suits investors entering the countdown to retirement who are looking for safe diversification from FAANG and volatile technology stocks.
Quantitative easing and low interest rates will remain tailwinds for years for homebuilders like DHI.
DHI is a buy at current levels for those with a long-term view, but the COVID-19 economic impact might be nasty for a couple of quarters.
Introduction
Given current market conditions, we thought it a good time to look at the safer end of the spectrum with D.R. Horton (NYSE:DHI), the largest homebuilder in the US, rather than our typical focus on growth technology stocks. The current downturn has pulled down home building stocks off their highs. For those with long-term goals, this is an opportunity.
We think DHI qualifies as a stock for investors heading towards retirement.
Steady long-term growth conservatively of 12-17% p.a.
It's not a FAANG stock, with little potential to be disrupted.
DHI is unlikely to face technology disruption.
US housing construction remains below requirements.
Low interest rates seem set to stay for foreseeable future.
Money printing is likely to support real assets like property.
DHI has a strong history of capital management.
The current valuation at a PE of 10 and yield of ~1.5% is quite fair.
#1 - Steady Long-Term Growth Trend
Many stock investors look for the next hot thing, but D.R. Horton exemplifies the "slow and steady wins the race" approach to investing.
Here are operations since 2007 to show post-crisis consistent growth.
Source: CGP Asset Management
To remove the seasonality noise, we have annualized the figures and calculated growth rates for the value of net sales, homes closed, and backlog.
The growth rate for sales value, closing value, and backlog value has averaged 17.5%, 18%, and 17.2%, respectively, over the last 10 years.
Read the rest of the report here on Seeking Alpha.
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