ISIM - HUGE find Buffett bets on prefab homes (stocks)
There are a few reasons for long-term
investors to look at stocks of manufactured homes. For one, the sector isn't being hit by the subprime
By Michael Brush
Few would call Warren Buffett unwise with his
money. It takes some smarts to build a fortune of $46 billion, after all.
So what's he doing
raising money in the housing sector? Specifically, why is he helping put three-quarters of a billion
dollars into manufactured homes, those humble, modestly priced abodes that come shipped in prefabricated
components, ready for assembly?
Sales of manufactured homes have been sluggish for years
because the industry missed out on the lift from subprime loans. Now, with mortgage lending tightening up
and the entire housing market in the dumps, sales of factory-built homes are the lowest they've been in
So what's a smart investor like Warren Buffett doing here?
A month ago,
Berkshire Hathaway (BRK.A, news, msgs) used its AAA credit rating to raise $750 million through a debt
offering for Clayton Homes, a provider of factory-built homes that's in the Oracle of Omaha's portfolio
This means it may be time for long-term investors to begin putting money into
prefab-home stocks, says Robert Robotti of Robotti & Co. investment advisers, which already holds several
of the stocks. Robotti is worth listening to because he's a value investor like Buffett, with
Buffett-like returns. His shop has posted after-fee compound annual returns of 20% for the past five
calendar years, compared with gains of 11.4% for the Russell 2000 Index $RUT.X).
"To me this
is classic contrarian investing in the sense that you become aggressive when everyone else is pulling
back," says another index-beating value investor, Robert Rodriguez, whose First Pacific Advisors also has
exposure to the sector. "I was encouraged to see that capital was being allocated to this industry. I
view that as a positive." The bank of Buffett Rodriguez and other observers, including top
managers at some of the key factory-built-home producers, think Clayton will use the money to back
mortgage lending in the space. Given the casualties among other home mortgage lenders, it makes sense for
Buffett to borrow money at the reasonable rates he can get because of his stellar credit rating and take
advantage of rising rates in this corner of the mortgage market.
Clayton has two financing
divisions, Vanderbilt and 21st Mortgage, that make loans in the sector. "By raising this capital they
become the dominant financer of this industry," says Rodriguez. "I think it is intriguing that he is
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