Morning Watchlist: Thursday Edition
A quick note from Behind the Markets
Today, two presidents sit down in Washington, and the crowd will spend the day handicapping a handshake. But the story we can't stop thinking about arrived quietly on Tuesday, in a stack of SEC filings from Omaha.
While Wall Street rates a certain homebuilder a Sell, the most famous investment firm on Earth was buying it by the truckload.
Three stories this morning. Three pairings. Let's get into it.
1) Omaha Went House Hunting
On Tuesday, filings revealed that Berkshire Hathaway bought more than 2.7 million shares of Lennar — one of America's biggest homebuilders — between September 17th and 21st, at prices from $74.80 to $79.41. That's a $212 million top-up on a position now worth well over $1 billion: roughly a tenth of the entire company. And it landed days after Warren Buffett handed the chairman's seat to his son Howard. New chair, same playbook.
Here's what makes it delicious. Wall Street's scorecard on Lennar right now: one Buy, seven Holds, five Sells, with an average price target near $80. Lennar just missed its third-quarter numbers — earnings of $1.19 a share against $1.28 expected, revenue down 8.6%, margins squeezed by the incentives it pays to move houses at 6.85% mortgage rates. Berkshire read all of that and kept buying.
We flagged Lennar as a Watch on September 13th, and our entrance required two things: operating margins finding a floor, and a friendlier Fed. The September 16th report delivered neither. Berkshire doesn't need our entrance — Omaha can wait ten years for a cycle to turn. Most of us can't, and Tuesday's 5% pop took the stock to about $83 — above the analysts' target and above the prices Berkshire itself just paid. Chasing Buffett's firm at a premium to Buffett's cost defeats the purpose. Lennar stays a Watch.
So step behind the headline. If the smartest capital in America is betting on homebuilders, ask what every builder — Berkshire-backed or not — has to buy before a single house goes up.
The pairing: Builders FirstSource (BLDR) — Watch
Builders FirstSource is the largest supplier of structural building products in the country — lumber, trusses, windows, doors, manufactured components. It's the lumberyard where the whole town shops: whichever builder wins the bid, the trucks back up to the same loading dock.
And the market just threw it out with the trash. On the same Monday The Trade Desk left the S&P 500, so did Builders FirstSource — down about 52% over the past year to a $6.5 billion market cap, near a 52-week low of $56.56 against a high of $131.50. Trailing earnings have collapsed 86% with the housing freeze, so the stock looks expensive on last year's numbers (about 65 times) but costs roughly 17 times next year's expected earnings. Twenty-three analysts rate it Buy, average target $80.62.
So why Watch and not Buy? Because next year's earnings are a forecast, and the last report missed with management citing "ongoing housing market headwinds." August's single-family housing starts rose 7.6% — one warm month. Our entrance: that turning into a trend, with Builders FirstSource's revenue stabilizing — or a washout below the $56 low that pays us for the wait. The kill: mortgages parked near 7% into 2027, freezing starts all over again. Buffett's checkbook is patient. Ours insists on proof.
2) The Cruise Line Bought the Beach
On Wednesday, Royal Caribbean announced it's paying about $3 billion for half of Sandals and Beaches — the all-inclusive resort empire spread across nine Caribbean island nations — at roughly 10 times cash flow, funded with committed debt, closing early next year and accretive to earnings the year after.
The crowd's verdict was swift: Royal Caribbean fell about 6%. A cruise line borrowing billions to buy hotels it will never sail? But listen to what the company just told you. The product was never the ship. The product is the vacation — and the biggest operator afloat thinks the land half of a two-trillion-dollar market is worth paying up for. (A $3 billion endorsement, too, of our OneSpaWorld Buy from September 14th.)
Here's the read-across the sellers missed: a sophisticated buyer just appraised all-inclusive Caribbean leisure at 10 times cash flow, in cash-committed money. So what's the cheapest public claim on the same vacationer?
The pairing: Travel + Leisure Co. (TNL) — Buy
Travel + Leisure is the timeshare giant behind Club Wyndham and WorldMark. Royal Caribbean just bought the stadium; this company sells the season tickets — vacation weeks owners come back to year after year, with the fees rolling in either way.
The numbers: a $3.9 billion company at about $63 that costs roughly 7.5 times next year's expected earnings. There's a 3.8% dividend yield while you wait, the share count shrank 4% in a year, and the latest quarter grew earnings per share 21% with full-year guidance raised. The analyst consensus is Strong Buy with an average target of $90.69. A raised-guidance business at a third of the market multiple, in the aisle a $3 billion buyer just validated — that's our kind of unglamorous.
The honest risks: Travel + Leisure is also a lender — it finances the timeshares it sells, so a cracking consumer at 7% loan rates shows up in its own loan book. (Early-stage delinquencies actually improved last quarter, and the average borrower's credit score is 740.) Its vacation-exchange side business is shrinking. And if the squeezed consumer finally skips vacation altogether, the season tickets stop selling — though three years of full ships and full resorts keep saying otherwise.
3) The Rain Check From Tehran
Quietly, under the summit headlines, oil just had its worst day in weeks. On Tuesday, West Texas crude fell 3.2% to $89.42 and Brent slipped to $97.64 — two-week lows — after Iran — its president in New York for the UN — floated reopening the Strait of Hormuz within seven days if Washington eases the pressure. Saudi Arabia's repaired East-West pipeline is already pushing exports back up.
Readers of our energy picks know we've named this scenario all month: de-escalation is the "cheerful loss" risk on Magnolia, Darling, SLB, and Excelerate — calls we'd happily see hurt by peace. This morning, the other side of that ledger.
The pairing: Alaska Air Group (ALK) — Watch
We flagged Alaska at about $40 on August 26th, when fuel was eating 32% of its revenue — a quarter where revenue grew 9.7% and the airline still lost $76 million. The trigger was oil holding in the low $80s. On September 1st, Iran answered diplomacy with missiles, and we declared that trigger dead: the named risk happened, so no trade.
Tuesday's news is the first serious attempt to resurrect it. Every dollar off a barrel of crude falls into an airline's pocket like found money, and analysts see Alaska's losses as temporary — UBS calls the profitability problems "largely transitory" with a $54 target; the average target sits near $58 against Tuesday's close of $41.91. Notice the stock has held above our old flag through $90-plus oil.
But a rain check is not a refund. Airlines pay the posted price for fuel while diplomats talk, and an offer at a podium is not a tanker through the strait. The re-armed trigger: Hormuz actually reopening and West Texas holding in the low $80s. The kill: talks collapsing and crude snapping back — which already happened once this month, and is exactly why this is still a Watch and not a Buy.
Before You Go
Omaha's receipt at the lumberyard, a cruise line's $3 billion appraisal of the beach, and a rain check from Tehran. One theme, as always: the best opportunities stand one step behind the headline.
Today's calendar is crowded. President Trump hosts Xi Jinping in Washington — our Andersons Buy (the soybean cash register) and Axcelis Watch (China, 46% of revenue) are both listening. Tonight after the close, Costco reports — the referee for our September 6th Costco Sell and BJ's Buy, and Sunday's PriceSmart Watch. And the FDA panel on Grail's blood test voted Wednesday, after our press time — Friday's edition grades what it means for our Illumina Watch.
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Written by Behind the Markets