BOSTON (TheStreet) -- What's the ultimate contrarian bet? Homebuilders.The industry has been soundly thumped for the past five years, but institutional investors, the so-called "smart money," have made big bets on a recovery. Almost all of one homebuilder in particular, outlined below, is owned by investment firms.
Toll Brothers ( TOL - Get Report), which focuses on high-end new homes, gets a "buy" recommendation and a four-star corporate rating from Standard & Poor's. And Morningstar glows about it, saying that it is "one of the most attractive long-term business opportunities in homebuilding, in our view, represented in part by its narrow economic moat. "The firm's well-managed indebtedness, lean operations and disciplined entrepreneurial style stemming from material inside ownership provide high visibility on the realization of this opportunity," said Morningstar. Almost 85% of its shares are owned by institutional investors, about half that by the 10 largest ones, including a 15% stake by Fidelity. Toll Brothers' shares are up 8% this year and 16% over the past 12 months, giving the company a market value of $3.5 billion.
Lennar ( LEN - Get Report) builds and sells new homes targeted at value-oriented, first-time and move-up purchasers in 14 states. It is one of the larger homebuilders, with a market value of $3.4 billion. Standard & Poor's has a "buy" recommendation and gives the company a four-star rating out of a possible five. S&P reports that "we see the company benefiting from its size relative to many of its homebuilder peers, and we forecast 18% revenue growth in (fiscal) 2012 in the housing recovery we expect." S&P adds that "we believe return on equity will begin to improve in (fiscal) 2011. We expect profitability to be sustainable in (fiscal) 2012, largely reflecting the increased demand we foresee for new homes and more stable pricing as market conditions likely improve." According to Morningstar, 89% of its shares are owned by institutional investors and the top 10 own 43%, led by Fidelity with a 15% stake.