Bill Miller of Legg Mason’s Opportunity trust, and widely known as a housing bull, was on Bloomberg’s “The Pulse” and he was discussing his investment recommendations. Miller has always been Bullish about housing stocks and some of his favorite stocks on the home builder sector have been PulteGroup, Inc. (NYSE:PHM) and Lennar Corporation (NYSE:LEN).
When Miller was asked about the big bets he placed on the housing markets particularly PulteGroup, Inc. (NYSE:PHM) and Lennar Corporation (NYSE:LEN) which are his biggest investments in the housing and mortgage sector, he was pretty confident about his bets. He was also asked about Jeffery Gundlach’s comments at the Ira Sohn Investment Conference, where Gundlach said that the home mortgage market is in a bearish condition and that the affordability is not all that bleak.
Miller started with a chuckle and here is what he stated
“It’s really fascinating, Jeff Gundlach is a great Bond Manager, I always like it when Bond managers opined about stocks. I think that’s not where their competitive image is. But every argument that he [Gundlach] makes about housing, about why he is bearish on housing, why he shouldn’t support housing. Every one of those is correct.”
Legg Mason’s fund manager continued stating that the housing affordability is not as great as it was, new home sales are disappointing and people prefer to rent more than buy now days. However, he said that the thinking has a flaw and he dint hesitate to point out that Gundlach’s arguments are bearish arguments. In his opinion companies like PulteGroup, Inc. (NYSE:PHM) and Lennar Corporation (NYSE:LEN) are miles off their highest reach in 2006.
“That group has been up 1 year in 8 years and that was in 2012. The Median PE ratio on home builders is about 10.5 times next year’s earnings”
Miller was confident that the growth rates for companies like PulteGroup, Inc. (NYSE:PHM) and Lennar Corporation (NYSE:LEN) even in the most sluggish environment would be 20 – 25 % for the next several years. Miller said that Bearish arguments on housing were in 2006 where there were headlines such as “record home sales”, “everybody wants to buy a house” and what not. So when there are cheap stocks in home building sector, it actually means that we are going to see an increase in it and there is no need to worry.