A Page from Buffett’s Playbook: Bullish on Housing Market

Warren Buffett made a big splash in October when he announced his bullish bet on the housing market. Here we are warning against participation in the real estate market, while the Oracle of Omaha is getting in. It’s not concerning though, because Buffett isn’t betting on home builders. He’s betting on home sellers.

Berkshire Hathaway teamed up with Brookfield Asset Management, the operator of the Prudential Real Estate and Real Living Real Estate networks.

These are the real estate agents that Rodney was talking about. These people sell homes and earn a commission – but they don’t care whether the home is a new home (that will better spur economic recovery) or an existing home. To real estate agents, a home is nothing more than a commission check.

Brookfield’s network of agents is much larger than the real estate brokerage, HomeServices, Buffett’s Berkshire Hathaway already owns.

Brookfield generated $72 billion in sales last year through its 53,000 agents that operate in 1,700 locations. The merger effectively doubles Buffett’s reach in the U.S.

With less reliance on new home starts/sales, Brookfield Asset Management (NYSE: BAM) looks to be a better bet than homebuilders. Its stock performance has been strong since 2009, tripling in value from about $12/share to $36/share.

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What’s more, it still has upside potential. BAM traded as high as $43/share in 2007 and if its strong uptrend continues the stock could reach this level again over the next year or so.

That said, we should take a page from Buffett’s playbook and wait for a better “value” price. Buying it now looks a bit too expensive.

I’ve highlighted a Fibonnaci “Buy” Zone for Brookfield that’s around $30. If the stock dips to this level it will give investors a good entry point for when the uptrend resumes.

I’ll keep an eye on this one…

If you haven’t done so already read the Survive & Prosper issue on “Home Sales are Inching Higher .”

 

 

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Categories: Markets

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Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.

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