Buy This Developer’s Stock for $0.50 on the Dollar

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I’m not going to “bury the lede” today.

Shares of property developer Howard Hughes Corp. (NYSE: HHC) look like a steal of a deal!

This property developer’s real estate portfolio is built around eight beautiful master-planned communities in Texas, Nevada, Maryland, New York, Hawaii and Arizona.

At the company’s 2022 investor day presentation, management gave a conservative estimate of what Howard Hughes shares are worth.

Chart: Illustrative Sum of the Parts Value
Management believes Howard Hughes shares are worth $170 per share.

Considering that shares are trading around $85, this $170 conservative valuation estimate is intriguing.

If Howard Hughes management’s calculation is correct, we have a chance to buy this stock today for just $0.50 on the dollar.

Adding tons of credibility to the attractiveness of these shares is the fact that legendary investor Bill Ackman has loaded up on Howard Hughes stock and now owns a whopping 31% of the company!

You may recall back in March 2020 when I recommended Bill Ackman’s investment vehicle Pershing Square Holdings (OTC: PSHZF) specifically because of his investing acumen.

That trade worked out incredibly well for us, as Pershing Square doubled in a year.

Now Howard Hughes is telling us that its stock is dirt cheap and Ackman is validating it for us. I think they’re onto something…

What I love about the company is that it not only owns extremely valuable real estate but also pumps out and has consistently grown cash flow.

Chart: Howard Hughes Operating Cash Flow

That cash flow allows the company to fund development internally, without having to rely fully on external financing.

Even better, having this source of cash flow allows management to snap up the best real estate bargain that it knows of: its own stock!

Over just the past year, the company has repurchased almost 10% of the outstanding shares at deep-bargain prices.

I often don’t like share repurchases by public corporations because they are so routinely completed without any thought given to valuation. But when a company’s stock is trading at $0.50 on the dollar and management aggressively buys back stock, I love it!

On The Value Meter, Howard Hughes lands squarely in “Extremely Undervalued.”
The Value Meter

My only word of caution is that this is likely going to be a situation where the true value of the shares is realized over time. This isn’t going to be an overnight win.

But with management steadily buying back stock at deeply discounted prices, the longer it takes for the market to price these shares more appropriately, the better. Every additional share repurchased at these prices creates value for shareholders.

If you have a stock that you’d like rated by The Value Meter, leave the ticker in the comments section.

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