The construction sector has been swinging back and forth this year. While the coronavirus-related despairs, inflation, tight labor market, Fed’s hawkish stance and residential market slowdown have spooked the market, an emphasis on rebuilding infrastructure proved to be a breather.

Focus on infrastructural enhancement around the globe, renewable energy drive, shift toward digital transformation, and the need for state-of-the-art construction and engineering services are somewhat offsetting the challenges associated with rising interest rates and residential slowdown, inflation, supply-chain disruptions and shortage of skilled labor.

Although the above-mentioned challenges have pushed construction players’ stock prices to their dip, companies like Cavco Industries, Inc. (CVCO Quick QuoteCVCO - Free Report) , CI&T Inc. (CINT Quick QuoteCINT - Free Report) and Altair Engineering Inc. (ALTR Quick QuoteALTR - Free Report) are expected to capture growth from the tailwinds.

Insights Into 2023 Sector Prospects

Year 2023 is expected to be a mixed one for the constructor sector. Higher uncertainty due to inflation, rising interest rates, a significant shortage of skilled workers and associated investment in retaining employees, and a potential impact of economic slowdown on their deliveries are expected to take a toll. Again, rising borrowing costs and elevated risk of recession have been driving the single-family homebuilding market into recession and hence residential construction companies comparatively are more pessimistic about the housing outlook for 2023.

Nonetheless, construction companies that embrace the sector’s evolving landscape will have more opportunities to drive growth, mainly centering the public non-residential and infrastructure market. Increasing construction activities in domestic and international government projects, which require state-of-the-art construction and engineering services, are expected to benefit the construction and engineering services industry. Also, the rapid use of advanced technologies to deliver smart buildings, mega-projects for green construction to reduce carbon footprint, and broadband initiatives are expected to be a major tailwind for the industry participants. Overall, the infrastructure spending and pandemic relief funds should enable the public sector to retain momentum despite the weakening of the broader economy.

Overall, although volatility will dominate the markets in 2023, construction service providers will gain from strong global trends in infrastructure modernization, energy transition and national security investments.

3 Winning Construction Stocks

Investors can keep an eye on the following construction stocks that might have slumped due to the ongoing headwinds but are expected to perform well in 2023.

We have shortlisted three construction stocks with the help of the Zacks Stock Screener that have dipped more than 20% so far this year. However, these stocks currently sport a Zacks Rank #1 (Strong Buy) or #2 (Buy), depicting positive estimate revision and solid earnings growth rate. This positive trend signifies bullish analyst sentiment, indicating robust fundamentals and the expectation of outperformance in the near term.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Cavco Industries: This Phoenix, AZ-based company designs, constructs and retails manufactured homes in the United States. The company markets its manufactured homes under the Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood and MidCountry brands. Rising mortgage rates have impacted consumers’ ability to buy homes but has not squished consumer interest in manufactured housing product. On a positive note, community demand for new manufactured homes has retained momentum, as demand for rentals remains high, which should help CVCO drive growth.

CVCO shares have lost 24.3% year to date (YTD) versus a 20.3% decline of the construction sector. That said, earnings per share (EPS) for this Zacks Rank #2 company’s fiscal 2023 is expected to witness 27.3% growth from that reported a year ago. Earnings estimates for the current fiscal year have increased to $27.16 per share from $24.05 over the past 60 days.

CI&T: Headquartered in Campinas, Brazil, the company provides strategy, design, and software engineering services to help in digital transformation for companies worldwide. CINT is about to finish a year of its debut in the capital markets and has broadened its operations globally through acquisitions, opening in new markets and verticals, and extending the global talent base. These moves will help the company to expand its footprint for robust organic growth in its four operating regions, namely, North America, Latin America, Europe and Asia Pacific. Although the macro environment remains challenging, digital transformation has been a priority in the corporate world and CI&T is well-positioned to reap benefits from the evolving market conditions. Its focus on speed and digital efficiency resonates extremely well with large and innovative companies.

CINT shares have declined 37.6% YTD. That said, EPS for this Zacks Rank #2 company’s 2023 is expected to witness 40.6% growth from that reported a year ago. Earnings estimates for 2023 have increased to 45 cents per share from 40 cents over the past 30 days.

Altair Engineering: The Troy, Michigan-based company provides software and cloud solutions in the areas of simulation, high-performance computing, data analytics and artificial intelligence worldwide. Despite significant macroeconomic uncertainty, ALTR has been registering solid growth in billings on a constant-currency basis and witnessing strong demand across all geographies. The company’s focus on delivering services with outstanding technology developments and applications is expected to drive growth.

ALTR, with a Zacks Rank #2 at present, has declined 36.9% YTD. That said, its earnings are expected to witness 21.5% growth from that reported a year ago.