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Selective September: Upside Remains in This Market Leader
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The undeniable stock market rally has surprised the masses this year after a confluence of events created the perfect backdrop. A deceleration in inflation measures, an economy that is growing well above initial projections, and a resilient corporate earnings picture have helped stocks regain much of the ground from the 2022 bear market.
The summer surge lost steam in August, but a recent uptick has the bulls hopeful that the normally dreary month of September will turn out better than expected. The price action in the stock market has been fast and furious this year, with sector rotation on full display as the more aggressive pockets of the market like technology have come back to the forefront.
While we certainly want to be targeting sectors like technology, other areas have also shown strength as the rally has broadened out in recent months. Another sector that has been outperforming this year as the economy bounced back is the Zacks Construction sector, which is cyclical in nature.
Cyclical Stocks Outperform
Stocks in this sector tend to do well during periods of economic strength. Cyclical stocks are affected by macroeconomic conditions and systematic changes in the overall economy. They tend to follow the normal business cycle that includes phases such as expansion, peak, contraction, and trough.
The Zacks Construction sector is currently ranked #1 out of 16 total sectors. Within this sector, the Building Products – Home Builders industry group is up nearly 50% on the year, while the S&P 500 has advanced roughly 18% year-to-date. This group is ranked in the top 2% out of approximately 250 Zacks Ranked Industries. The outperformance speaks to the notion that the economy is in better shape than many market participants believe.
Image Source: Zacks Investment Research
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Despite the impressive performance this year, this group remains relatively undervalued:
Image Source: Zacks Investment Research
Trends can often persist for much longer than most investors would expect. Let’s dive deeper into a market leader contained within this favorable sector and industry group combination.
Delivering the American Dream
Dream Finders Homes (DFH - Free Report) is engaged in the homebuilding business in the United States. The company designs, constructs, and sells single-family homes in some of the country’s hottest markets including Florida, North Carolina, Colorado, Texas, and the Washington D.C. metropolitan area. Dream Finders Homes also provides insurance agency services including escrow, closing, and title insurance.
A Zacks Rank #1 (Strong Buy) stock, DFH has exceeded earnings estimates in two of the last three quarters, with an average earnings beat of 166.5% over that timeframe. The homebuilder most recently reported second-quarter earnings back in August of $0.65/share, a 103.1% surprise over the $0.32/share consensus estimate. Consistently beating earnings estimates is a recipe for outperformance.
Analysts covering DFH have raised earnings estimates across the board. Looking ahead, next year’s EPS estimate has climbed 39.57% in the past 60 days. The 2024 Zacks Consensus Estimate now stands at $2.61/share, reflecting potential growth of 13.8% relative to this year.
Image Source: Zacks Investment Research
The stock price has reflected this growth, as shares of Dream Finders Homes have advanced more than 210% this year, widely outperforming the major indexes:
Image Source: StockCharts
Final Thoughts
The stock market is forward-looking and is telling us to keep an open mind regarding bullish outcomes in the future. Outperformance from sectors like technology and construction paint a picture of a resilient economy, and we want to target these sectors when making investment decisions in the current environment.
The various Zacks Ranking systems allow us to narrow down the investment universe. Homebuilders have witnessed increasing demand this year as existing housing inventory remains limited.
Drilling down further into individual industry groups can help us uncover leading stocks like DFH. With earnings estimates on the rise, make sure to keep an eye on this market leader.
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Selective September: Upside Remains in This Market Leader
The undeniable stock market rally has surprised the masses this year after a confluence of events created the perfect backdrop. A deceleration in inflation measures, an economy that is growing well above initial projections, and a resilient corporate earnings picture have helped stocks regain much of the ground from the 2022 bear market.
The summer surge lost steam in August, but a recent uptick has the bulls hopeful that the normally dreary month of September will turn out better than expected. The price action in the stock market has been fast and furious this year, with sector rotation on full display as the more aggressive pockets of the market like technology have come back to the forefront.
While we certainly want to be targeting sectors like technology, other areas have also shown strength as the rally has broadened out in recent months. Another sector that has been outperforming this year as the economy bounced back is the Zacks Construction sector, which is cyclical in nature.
Cyclical Stocks Outperform
Stocks in this sector tend to do well during periods of economic strength. Cyclical stocks are affected by macroeconomic conditions and systematic changes in the overall economy. They tend to follow the normal business cycle that includes phases such as expansion, peak, contraction, and trough.
The Zacks Construction sector is currently ranked #1 out of 16 total sectors. Within this sector, the Building Products – Home Builders industry group is up nearly 50% on the year, while the S&P 500 has advanced roughly 18% year-to-date. This group is ranked in the top 2% out of approximately 250 Zacks Ranked Industries. The outperformance speaks to the notion that the economy is in better shape than many market participants believe.
Image Source: Zacks Investment Research
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Despite the impressive performance this year, this group remains relatively undervalued:
Image Source: Zacks Investment Research
Trends can often persist for much longer than most investors would expect. Let’s dive deeper into a market leader contained within this favorable sector and industry group combination.
Delivering the American Dream
Dream Finders Homes (DFH - Free Report) is engaged in the homebuilding business in the United States. The company designs, constructs, and sells single-family homes in some of the country’s hottest markets including Florida, North Carolina, Colorado, Texas, and the Washington D.C. metropolitan area. Dream Finders Homes also provides insurance agency services including escrow, closing, and title insurance.
A Zacks Rank #1 (Strong Buy) stock, DFH has exceeded earnings estimates in two of the last three quarters, with an average earnings beat of 166.5% over that timeframe. The homebuilder most recently reported second-quarter earnings back in August of $0.65/share, a 103.1% surprise over the $0.32/share consensus estimate. Consistently beating earnings estimates is a recipe for outperformance.
Analysts covering DFH have raised earnings estimates across the board. Looking ahead, next year’s EPS estimate has climbed 39.57% in the past 60 days. The 2024 Zacks Consensus Estimate now stands at $2.61/share, reflecting potential growth of 13.8% relative to this year.
Image Source: Zacks Investment Research
The stock price has reflected this growth, as shares of Dream Finders Homes have advanced more than 210% this year, widely outperforming the major indexes:
Image Source: StockCharts
Final Thoughts
The stock market is forward-looking and is telling us to keep an open mind regarding bullish outcomes in the future. Outperformance from sectors like technology and construction paint a picture of a resilient economy, and we want to target these sectors when making investment decisions in the current environment.
The various Zacks Ranking systems allow us to narrow down the investment universe. Homebuilders have witnessed increasing demand this year as existing housing inventory remains limited.
Drilling down further into individual industry groups can help us uncover leading stocks like DFH. With earnings estimates on the rise, make sure to keep an eye on this market leader.