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 warnrning against participation in the real estate market, while the Oracle of Omaha is getting in. It’s not concernrning 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 earnrn 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.

See larger image

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 .”

 

 

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.