With U.S. home sales continuing to surge and the shares of wholesale mortgage originator UWM Holdings Corporation (NYSE:UWMC) trading at a very reasonable valuation, UWMC stock looks like a good buy for value investors and income investors at this point.
And importantly, the growth of U.S. home sales is unlikely to slow a great deal anytime soon.
According to Barron’s, UWM ” works with independent brokers to drive borrowers to their loans.”
Home Sales Are Likely to Remain Hot
Among the biggest factors behind the housing boom are the work-from-home trend, rapidly rising crime in cities, very low interest rates, a high differentiation in the tax burden of the various states, and closed public schools in some regions.
The housing boom is so strong that, in January, the national S&P CoreLogic Case-Shiller Index increased by the highest amount year-over-year since 2006. As is well-known, that was during the heart of the last U.S. housing boom. But unlike the last housing surge, which was triggered by insanely easy money, this one has strong fundamental underpinnings.
Further, a recent survey of Americans “showed more consumers intended to buy homes … over the next six months” amid rising consumer confidence.
Factors Won’t Disappear
And although those fundamental drivers are likely to erode over the next year, they won’t disappear. Many Americans will return to offices, but there will be tens of millions more work-from-home employees than before the pandemic. Crime will ease, but will likely keep registering meaningful year-over-year increases. Interest rates will climb, but with some help from the Fed and inflation-stemming tax increases, rates will probably remain historically low.
Changes in federal tax law, i.e. the elimination of the SALT deduction ceiling, will close the states’ tax gap but these measures will not come close to eliminating the disparities. Finally, schools will reopen, but many parents will have lost trust in the school districts that kept their doors closed for far too long.
Meanwhile, the salaries of middle-class and wealthy millennials will keep climbing, also raising demand for single-family homes.
So overall, the housing boom will cool off significantly. But the housing market’s growth should continue to be quite strong. That phenomenon, in turn, should boost the top and bottom lines of UWM Holdings, thereby raising UWMC stock.
On Feb. 16, Deutsche Bank analyst Ashish Sabadra started coverage of UWMC stock with a $12 price target and a ” buy.”
“Robust loan production, along with industry-leading gain margins, delivers solid profitability, and solid cash generation and shareholder-friendly capital allocation make it an attractive value proposition,” Sabadra wrote, according to Seeking Alpha.
Other positive points about UWM include its technology and its increasing market share, the analyst stated. Meanwhile, the three analysts covering the shares have an average price target on UWMC stock of $10.67, well above its current price of $7.83.
And in his column published on March 26, another InvestorPlace contributor, David Moadel, wrote that UWM “appears to have solid fiscal stats and innovative product ideas.” Moadel noted that in the fourth quarter of last year, the value of the company’s loan originations surged 71% year-over-year to a record $54.7 billion. That’s a very impressive YOY jump.
The Bottom Line on UWMC Stock
Despite the company’s extremely strong Q4 growth and the upbeat macro outlook, UWMC stock has a forward price-earnings ratio of just 5.9 times. That’s extremely cheap in today’s market.
Further, the mortgage originator has a superb dividend yield of 5%, Value investors will enjoy the low valuation of UWMC stock, while income investors will be very pleased with its large dividend yield. Those investors should buy the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.