ISIM - HUGE find Buffett bets on prefab homes (stocks)
 

ISIM - HUGE find Buffett bets on prefab homes (stocks)

There are a few reasons for long-term investors to look at stocks of manufactured homes. For one, the sector isn't being hit by the subprime lending mess.

By Michael Brush

Few would call Warren Buffett unwise with his money. It takes some smarts to build a fortune of $46 billion, after all.

So what's he doing raising money in the housing sector? Specifically, why is he helping put three-quarters of a billion dollars into manufactured homes, those humble, modestly priced abodes that come shipped in prefabricated components, ready for assembly?

Sales of manufactured homes have been sluggish for years because the industry missed out on the lift from subprime loans. Now, with mortgage lending tightening up and the entire housing market in the dumps, sales of factory-built homes are the lowest they've been in 45 years.

So what's a smart investor like Warren Buffett doing here?

A month ago, Berkshire Hathaway (BRK.A, news, msgs) used its AAA credit rating to raise $750 million through a debt offering for Clayton Homes, a provider of factory-built homes that's in the Oracle of Omaha's portfolio of holdings.

This means it may be time for long-term investors to begin putting money into prefab-home stocks, says Robert Robotti of Robotti & Co. investment advisers, which already holds several of the stocks. Robotti is worth listening to because he's a value investor like Buffett, with Buffett-like returns. His shop has posted after-fee compound annual returns of 20% for the past five calendar years, compared with gains of 11.4% for the Russell 2000 Index $RUT.X).

"To me this is classic contrarian investing in the sense that you become aggressive when everyone else is pulling back," says another index-beating value investor, Robert Rodriguez, whose First Pacific Advisors also has exposure to the sector. "I was encouraged to see that capital was being allocated to this industry. I view that as a positive."
The bank of Buffett
Rodriguez and other observers, including top managers at some of the key factory-built-home producers, think Clayton will use the money to back mortgage lending in the space. Given the casualties among other home mortgage lenders, it makes sense for Buffett to borrow money at the reasonable rates he can get because of his stellar credit rating and take advantage of rising rates in this corner of the mortgage market.

Clayton has two financing divisions, Vanderbilt and 21st Mortgage, that make loans in the sector. "By raising this capital they become the dominant financer of this industry," says Rodriguez. "I think it is intriguing that he is doing this."

http://articles.moneycentral.msn.com...efabHomes.aspx


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SHARE STRUCTURE:
outstanding 610 million
restricted held by management 432 million
public float 178 million

SHARE STRUCTURE:
 

SHARE STRUCTURE:
outstanding 610 million
restricted held by management 432 million
public float 178 million

*** ISIM annotated for 11/9/2010 ***
 

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