Most of the market today is focused on the hype surrounding technology stocks, especially now that names like NVIDIA (NASDAQ: NVDA) keep making new all-time highs almost daily. However, fundamentals matter more today than ever, which is why Warren Buffett decided to look elsewhere to catch an even bigger trend.

You, too, can ride on the same tailwinds that the Oracle of Omaha spotted in the current United States real estate sector. He is not alone when it comes to finding value in the construction value chain, namely in homebuilder stocks. You shouldn’t go blindly buying just any stock related to the housing market, so you will have to dig in and understand why others like Fisher Investments are also buying into the sector.

For now, focus on understanding why stocks like Lennar Co. (NYSE: LEN) are set to keep making new all-time highs without the potential risks that come with NVIDIA’s supply chain and U.S. versus China chip wars. Markets, analysts, and institutional buyers like this stock; all the tailwinds are here to keep bidding it higher. Here’s the gist.

Catch the Wave

According to the CME Group Inc. (NASDAQ: CME), most outstanding mortgages in the United States carry an interest rate of 3.2%. Because most of these mortgages originated during the peak months of the COVID-19 pandemic, there is now a major bottleneck in the market.

Holding mortgages that seem infinitely cheaper to today’s average 7.1% rate on a 30-year fixed loan, these homeowners are not likely to sell out any time soon. Why would you sell out at a cheap financing rate and have to look for a new home at a much more expensive monthly payment?

At the same time, would-be homebuyers are not particularly excited to buy a new home, knowing their payments would eat a high percentage of their monthly income. More than that, data from the Federal Reserve (the Fed) points to the average home sales price of $492,300 today, up more than $100,000 since the pandemic.

So, nobody is looking to buy while nobody is looking to sell. There is only one way to fix this problem, and the solution is one that Buffet spotted when he bought into Lennar in the past couple of quarters.

By building more real estate inventory, the market can put direct pressure on financiers to lower rates. Otherwise, this new inventory is at risk of just ‘sitting’ there. At the same time, injecting more available properties into the market could reduce prices as more supply outpaces the currently weak demand.

Knowing this, you shouldn’t be surprised that the Fed is looking to cut interest rates later this year. Following the futures market through the CME Group’s FedWatch tool, you’ll see that traders are pricing these cuts to potentially come in May.

Homebuilders have turned bullish in this expectation since lower interest rates are followed by cheaper mortgages, and building permits are trending up from the past two quarters. Get the picture? Why could Lennar be your best pick for the rest of the year?

Follow the Market

Despite trading at 98% of its 52-week high price, which is also an all-time high, Wall Street analysts think Lennar stock could go even higher. JMP Group (NYSE: JMP) has upgraded its price target on Lennar to $170 a share, calling for a rally of roughly 5% from today’s prices.

Since Lennar is a $40 billion behemoth, single-digit growth is still nothing to scoff at. If you are afraid of buying a stock near its all-time highs, here are some facts to reassure you it has nothing to do with how much higher the stock could go.

Institutions like Fisher Investments, known for their long-term value-hunting strategies, have bought Lennar stock lately. As of March, Fisher upped its stake in the stock by as much as 1.4%. While seemingly insignificant in percentage terms, this increase represents a transaction of roughly $250,000.

Markets are unapologetic about how they value this stock, giving you the evidence you need to justify its future strength. On average, the homebuilder industry expects to grow its earnings per share (EPS) by 7.5% over the next twelve months, where Lennar stands out.

Analysts project Lennar’s EPS to grow by 11% over the next year, placing it head and shoulders above competitors like Toll Brothers Inc. (NYSE: TOL), which saw EPS decline by 0.4% during the period.

Price action against the Vanguard Real Estate ETF (NYSEARCA: VNQ) shows that Lennar outperformed the broader real estate sector by 58% over the past twelve months. While past performance can’t be used to project the future, the same fundamentals that brought Lennar higher are still present to give it one more leg up.

The article "Can Lennar Stock Reach a New All-Time High? Market Says Yes" first appeared on MarketBeat.