Lennar Corporation (LEN) Slipped Due to Affordability Pressures

Aristotle Capital Management, LLC, an investment management company, released its “Value Equity Strategy” second quarter 2024 investor letter. A copy of the letter can be downloaded here. US markets continued their trend in the second quarter and the S&P 500 Index rose 4.28%. “Magnificent 7” drove the rally once again. The composite returned -1.55% gross of fees (‐1.61% net of fees) in the second quarter outperforming the ‐2.17% return of the Russell 1000 Value Index and trailing the 4.28% return of the S&P 500 Index. Security selection led the composite to outperform in the quarter relative to the Russell 1000 Value Index, while allocation effects detracted. In addition, please check the fund’s top five holdings to know its best picks in 2024.

Aristotle Capital Value Equity Strategy highlighted stocks like Lennar Corporation (NYSE:LEN) in its Q2 2024 investor letter. Headquartered in Miami, Florida, Lennar Corporation (NYSE:LEN) is a homebuilder. The one-month return of Lennar Corporation (NYSE:LEN) was -6.01%, and its shares gained 12.02% of their value over the last 52 weeks. On July 10, 2024, Lennar Corporation (NYSE:LEN) stock closed at $145.72 per share with a market capitalization of $39.748 billion.

Aristotle Capital Value Equity Strategy stated the following regarding Lennar Corporation (NYSE:LEN) in its Q2 2024 investor letter:

"Lennar Corporation (NYSE:LEN), one of the nation’s largest homebuilders, was the biggest detractor for the quarter. Despite executing on previously identified catalysts, including shifting toward a capital‐light business model (i.e., 79% of land controlled via options versus 21% owned, an improvement from 70/30 just one year ago), formal plans for a spinoff of $6 billion to $8 billion of land assets, and monetizing non‐core assets such as the recently announced sale of multifamily housing assets, Lennar’s share price declined during the quarter. Management has called out affordability pressures (e.g., higher prices and mortgage rates) as challenges that have pressured gross margins and may continue to do so. Lennar has navigated affordability issues through more efficient operations (i.e., leveraging scale, as well as accelerating and matching production and sales volumes to lower construction costs) and increased incentives, the latter of which we view as unsustainable. As always, we are closely monitoring these cyclical dynamics with an eye to what is truly “normal.” Moreover, we take (some) comfort in Lennar’s excess net cash position and its potential to redeploy capital in the business and/or return cash to shareholders. Lastly, we remain sanguine on the U.S housing market, as well as Lennar’s ability to manage through the inevitable housing cycles."

List of Homebuilder Stocks Sorted By Hedge Fund Sentiment

Photo by Jens Behrmann on Unsplash

Lennar Corporation (NYSE:LEN) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 75 hedge fund portfolios held Lennar Corporation (NYSE:LEN) at the end of the first quarter which was 65 in the previous quarter. While we acknowledge the potential of Lennar Corporation (NYSE:LEN) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In addition, please check out our hedge fund investor letters Q2 2024 page for more investor letters from hedge funds and other leading investors.

READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.

Disclosure: None. This article is originally published at Insider Monkey.