Warren Buffett has not done badly since the Federal Reserve started raising interest rates in March 2022. Stocks of Berkshire Hathaway are more than the S&P 500 during the higher rate environment.
However, Buffett is likely hoping for lower interest rates, like many investors. Some stocks in his Berkshire Hathaway portfolio could especially benefit from a positive move from the Federal Reserve. Here are two Buffett stocks in particular that could rise if the Fed cuts rates in September.
Two Buffett birds of the same feather
Buffett took positions in three housing stocks in the second quarter of 2022. His largest holding by far was in DR. HortonHe then sold all of Berkshire’s shares in the giant homebuilder, but kept the other two shares.
Today, Berkshire owns approximately $25.6 million in Lennar (NYSE:LEN) shares. It also owns $100 million in NVR (NYSE: NVR) stocks. Granted, these are small positions for Berkshire. But Lennar and NVR still qualify as Buffett stocks.
Lennar is the larger of the two companies, with a market cap of more than $49 billion. The company has been around for 70 years. The homebuilder operates in 22 states.
NVR’s market capitalization is approximately $28 billion. The Virginia-based company operates in 16 states and builds and sells homes under three brands: Ryan Homes, NVHomes and Heartland Homes. NVR also has subsidiaries that provide mortgage and settlement services to homebuyers.
Why Lennar and NVR rate cuts should give a boost
There’s a simple reason why rate cuts should boost Lennar and NVR. Lower interest rates generally lead to lower mortgage rates. And lower mortgage rates encourage new home purchases.
Lennar executive chairman and co-CEO Stuart Miller summed it up well in his company’s second-quarter earnings call. Miller said: “[A]“If rates come down and normalize, and if the Fed actually starts to cut rates, then we think there will be pent-up demand and we will be well prepared.”
Miller’s comments also apply to NVR. The “pent-up demand” for new homes that he referred to will help all homebuilders.
It looks like the Federal Reserve will soon make its long-awaited rate cuts. Chairman Jerome Powell said last week, “My confidence has grown that inflation is on a sustainable path back to 2%.” This statement is huge, given that the rate hikes that began in early 2022 were done to bring down the skyrocketing inflation numbers. Powell proclaimed, “The time has come for policy to adjust.”
What if the Fed does not do lower rates in September?
However, the Federal Reserve chairman has not fully committed to cutting rates in September. He stated: “[T]The timing and pace of rate cuts will depend on incoming data, the changing outlook and the balance of risks.”
So what will happen to Lennar and NVR if the Fed… does not do rate cut in september? I think the two stocks will still rise.
The November presidential election could be a catalyst for both stocks. Democratic candidate Kamala Harris wants to boost the construction of 3 million new homes by 2028. Her proposals include financial aid for first-time homebuyers and tax breaks for builders who sell homes to first-time homebuyers.
More importantly, the US has a chronic housing shortage. More new homes are needed. Lennar and NVR will continue to grow regardless of what the Fed does or what happens in the election.
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Lennar and NVR. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks That Could Rise If the Fed Cuts Rates in September was originally published by The Motley Fool
