Warren Buffett has not suffered much since the Federal Reserve began raising interest rates in March 2022. Berkshire Hathaway up more than S&P 500 during a higher environment.
However, Buffett may expect lower rates because of the large number of investors. Some stocks in Berkshire Hathaway’s portfolio in particular could benefit from a positive move by the Federal Reserve. Here are two Buffett stocks, in particular, that could rise if the Fed cuts interest rates in September.
Two Buffett birds of a feather
Buffett initiated a position in three housing stocks in the second quarter of 2022. The largest stock, currently, is in DR Horton. He later sold all of Berkshire’s stock in the giant homebuilder. However, he holds two other shares.
Today, Berkshire has about $25.6 million Lennar (NYSE: LEN) sharing. It also owns $100 million from NVR (NYSE: NVR) stock. Of course, this is a small position for Berkshire. But Lennar and NVR certainly still qualify as Buffett stocks.
Lennar is the larger of the two companies with a market cap of more than $49 billion. Been in business for 70 years. The home builder has operations in 22 countries.
NVR market capitalization is around $28 billion. The Virginia-based company operates in 16 states, building and selling homes under three brands: Ryan Homes, NVHomes, and Heartland Homes. In addition, NVR has subsidiaries that offer mortgage and settlement services to home buyers.
Why rate cuts should boost Lennar and NVR
There is a simple reason why interest rate cuts should boost Lennar and NVR. Lower interest rates usually lead to lower mortgage rates. And lower mortgage rates boost new home purchases.
Lennar executive chairman and co-CEO Stuart Miller summed it up well on the company’s second-quarter earnings call. Miller said, “Interest rates (A) subside and normalize and if the Fed will actually start reducing rates, we believe that pent-up demand will be activated, and we will also be prepared.”
Miller’s comments also apply to NVRs. “Pent-up demand” for new homes is said to help all homebuilders.
It appears that the Federal Reserve will soon deliver an anticipated rate cut. Chairman Jerome Powell said last week, “My confidence has grown that inflation is on a sustainable path back to 2%. This statement is huge, because the rate hikes that begin in early 2022 are designed to reduce the rate of inflation. Powell said, “The time has come for policy to set.”
What if the Fed not reduce rates in September?
However, the chairman of the Federal Reserve did not fully commit to cutting interest rates in September. He stated, “(T)he timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
So what will happen to Lennar and NVR if the Fed not reduce rates in September? I think both stocks will still go higher.
The November presidential election could provide a catalyst for the stock. Democratic candidate Kamala Harris wants to start construction of 3 million new homes by 2028. Her proposal includes providing financial assistance to first-time home buyers and tax incentives for builders who sell homes to first-time home buyers.
More importantly, the US has a chronic housing shortage. More new homes are needed. Lennar and NVR will continue to grow regardless of what the Fed does or what happens in the election.
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Keith Speights has a position in Berkshire Hathaway. The Motley Fool has positions and recommends Berkshire Hathaway, Lennar, and NVR. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks That Could Soar If the Fed Cuts Interest Rates in September Originally published by The Motley Fool
