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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 12
Warren Buffett's Berkshire Hathaway on Monday unveiled an $814mn investment in three US housebuilders, a bet on a sector that has benefited from dearth of supply.
Berkshire disclosed it had purchased 6mn shares of DR Horton, worth about $726mn at the end of the second quarter, as well as 152,572 shares in Lennar and 11,112 shares of NVR.
It's an investment of a scale typical of the new guys, but buying a slate of firms in an industry is typical of some of Mr Buffett's recent moves. Airlines, Sogo shosha.
If the latter, maybe there will be more purchases.
Jim
No. of Recommendations: 2
I've recently bought a basket of the UK house builders trading at 5 year lows. Persimmon, Bellway, Barratt, Taylor Wimpey, Redrow, Vistry. I bought some of each. Also worth a look as a sector play, pay some nice dividends and balance sheets are ok.
I've also been taking a look at British Land trading at 5 year lows and Shaftesbury which owns Covent Garden etc.Both commercial property plays trading at c35-40 discounts to NAV.
No. of Recommendations: 0
Interesting - thanks for the idea :-)
SA
No. of Recommendations: 5
Another U.K. builder worth owning is Berkeley Group. Many years ago I worked for a corporate finance firm in London and Berkeley were a client. I have owned it in the past was was too dumb to hold it. It came to mind in the last year as the higher interest rates and grim U.K. property market has hit the headlines. Seeing Berkshire pick up some US builders recently has fuelled my interest further.
I am in no position to buy yet having done almost no research lately on it. But I remember they were known to have the following characteristics.
Extremely well run. Shrewd housing market timing. Shareholder friendly with a strong bias for making money when the going is good and then returning it to shareholders aggressively when they think it's time to scale back. Buy backs and major dividends payouts.
From a very quick glance at their latest financial statements, they are not as cheap on a price to book as competitors. PE is around 10, which is not so cheap if the cycle is about to take a noise dive.
The U.K. stock market really is in the doldrums and has been for a long time now. FTSE100 is only a fraction higher than it was in 1999. Commentators have almost written off the U.K. Brexit has put a spanner in free trade. The Scottish and the Northern Irish want to leave, or at least large sections of their countries do. No big tech to speak of. Labour government set up to take charge in a few years. Might not be capitalist friendly. Neighbours Ireland are booming and making U.K. look bad. Large section of houses with short term fixed rates in a rising interest rate environment. Budget deficit making life hard for government. So lots to worry about.
Big positives are respected institutions and rule of law.
Berkeley Group operates exclusively in the rich south of the country and specialises in brown field development. And are very good at it.
Long term U.K. needs more property to house it growing population. Immigration also a sign that it's not that bad in the U.K.
U.K. planning laws prevent the level of building required due to - a not in my backyard policy. Berkeley Homes with it brown field strategy is perfectly placed long term.
I will be keeping an eye on the valuation if the housing market get tougher and it get cheaper temporarily.
London is still an important place for the global rich to keep assets.
I would get very interested in b
No. of Recommendations: 5
... not so cheap if the cycle is about to take a noise dive...
I realize this is probably just a meaningless typo for "nose dive", but I like it.
When the price of a valuable asset falls, it's not a brick falling to the ground, it's just statistical noise!
I have no idea about the value of most house building firms, so I have no positions.
It does seem like one of those businesses that, if they don't blow up (a big if in some cases), they will probably make money over the long run even with occasional unprofitable stretches, so they make a good long term hold for someone who's happy to live through those dry spells. A willingness that Berkshire certainly has. At that point it's just a case of making sure that the entry price is low enough relative to the aggregate future earnings.
Jim
No. of Recommendations: 3
The risk of typos with that post was alway dangerously high. As I was approaching the end of it, a friend was waiting outside to go for a walk and I said I'll be there in two minutes.
You have reminded me of something crucial. Berkeley Group has very low debt. Extremely important in a cyclical business. The conventional thinking with highly cyclical businesses is that you don't want a lot of debt. And they are hard to make money with because you have to buy at the right price and sell at the right price. But with a good operator like Berkeley Group maybe my approach will be to trade around a core position.
Certainly hard to predict housing in the U.K. or US over the next few years.
No. of Recommendations: 0
Before buying UK housebuilders, review what happened to them in 2007-2009 in the crash. They seem rather geared to downturns.
No. of Recommendations: 3
Before buying UK housebuilders, review what happened to them in 2007-2009 in the crash. They seem rather geared to downturns. I'm not sure what the future holds in that regard, but the current broad UK house price direction is not chipper, unless you're buying soon.
https://nybreaking.com/house-prices-record-largest..."House prices record largest annual decline in 14 years...They are down 3.8% year to July"Core UK inflation in the last year was 6.9%, so that's a real price drop of -10.4%.
In Feb (the last data I have handy) average prices in prime central London were down 15% from their peak in 2015, before inflation adjustment.
Jim
No. of Recommendations: 1
Only purchased a 1% in total of portfolio position across 5 companies, should've clarified.....Also because I deal with them in business and I can now say I'm part owner too. One thing that annoys me about these companies is how much the management take out in bonuses and pay packages etc but hold very few shares. They also write "incentive programs" at the bottom of the market and claim outperformance and walk away. The trend is very much your friend with UK house builders. However with recent interest rate rises and the cladding issue share prices have been hit markedly and represent good value with a 5 year view I think.
No. of Recommendations: 2
Anecdotally, trying to sell a bog standard house which was let, reduced the price to an attractive level but still no takers and have decided to re let, the going rate is now 25% above that of the last tenant to vacate. Rentals are strong sales weak.
No. of Recommendations: 1
Core UK inflation in the last year was 6.9%, so that's a real price drop of -10.4%.
In Feb (the last data I have handy) average prices in prime central London were down 15% from their peak in 2015, before inflation adjustment.
Yes. From what I've seen from a brief look in the last few days, most UK housebuilder and property company share prices are ~50% down from peak. That might not be anywhere near the bottom, but it gives some reassurance. A strong balance sheet gives some more, and when inflation and interest rates fall that should give some more. (For those that are confident rates will fall, of course.)
I'm considering buying an initial slate of 3 or 4 with the option of perhaps doubling the stake at a later date ...
SA
