This column originally appeared on Real Money Pro at 8:53 a.m. EDT on April 17.
NEW YORK (Real Money) -- Michelle Caruso-Cabrera filled in for Scott Wapner in our "Fast Money Halftime Report" discussion yesterday.
Monday's "Fast" conversation revolved around financials -- namely, how to invest in the sector.
My variant (more bullish) view is that a multiyear and durable U.S. housing recovery is ahead of us and that the banks most exposed to the domestic residential real estate markets represent the best way to play this eventuality.
Let's go to the tape!
I am very optimistic with regard to the outlook for the residential real estate markets in the U.S. -- the scope and duration of the recovery will surprise many in the years ahead.
Housing affordability is at a near-record high.
New production is extremely low relative to household formation and demographic trends, so a lot of pent-up demand will be unleashed.
The economics of home ownership has tilted away from renting.
Although there was some hesitation in the recent numbers, the U.S. jobs market is making a decisively positive turn.
Mortgage rates are at generational lows.
Housing surveys are slowly improving as is consumer confidence.
I also see interest rates rising, which is a good thing for banks, because the industry has an imbalance of rate-sensitive assets over rate-sensitive liabilities, meaning that net interest margins will be rising over time.
My favorite way to play the housing recovery is through Berkshire Hathaway(BRK.A)/ (BRK.B), which not only owns 7.6% of Wells Fargo(WFC) but has a $5 billion preferred on Bank of America(BAC) and is also exposed in a big way to U.S. housing via Benjamin Moore, Clayton Homes, Star Furniture, Nebraska Furniture Mart and Shaw Industries. By my calculations, Berkshire trades at a near-30% discount to its intrinsic value. The class A shares trade at $118,000 vs. an intrinsic value of $152,000. (I own the B shares.) I take a discount to the company's cash and investments and use only 7.5x its pretax core business, which is more conservative than Whitney Tilson's approach.
Steve Grasso asked me about the building materials companies -- namely, USG Corporation(USG) -- and if it is more attractive to buy more direct housing-related stocks over banks. I said no, and I called attention to the two-year chart of Home Depot(HD) vs. Bank of America, which underscores the value in bank stocks as compared to building materials or renovation companies. (I also own Bank of America and Wells Fargo in the bank sector.)
Brian Kelly discussed his view on housing -- he remains concerned with supply. I responded that the shadow inventory that has plagued housing over the past four years is starting to clear. As an example, the Phoenix market had over 17 months of inventory and supply in early 2011; it is now down to only three months. Land values have regained the speculative tone of the early 2000s in the non-inland areas of northern and southern California, and buyers from the Northeast U.S. and South America are quickly absorbing the formerly massive supply of foreclosed properties in Miami.
Bottom line: My message was to buy Berkshire Hathaway, Bank of America and Wells Fargo.
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