Berkshire snaps up a homebuilder for a massive premium — catch the sector tailwind
Berkshire Hathaway just announced it is buying homebuilder Taylor Morrison for $6.8 billion in cash, paying a 24% premium over the stock's last closing price. This massive vote of confidence from Warren Buffett's company suggests the housing market is stronger than many expected.
Idea
When a legendary investor makes a multi-billion dollar bet on a specific industry, it often forces Wall Street to re-evaluate all the companies in that sector. Berkshire is paying a massive premium for Taylor Morrison, which implies that the underlying value of homebuilders' land and upcoming contracts is much higher than current stock prices reflect. As news of this acquisition spreads, money will likely flow into other major homebuilder stocks that could also become buyout targets or simply look cheap by comparison. Buying a basket of well-known homebuilders is a smart way to ride this sudden wave of sector optimism.