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Construction Spending Making Steady Rebound: 4 Stocks to Buy
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Spending on construction projects is steadily rising, led by a rebound in the housing market. The Commerce Department said on Jul 1 that spending on construction projects jumped 0.9% in May, following a 0.4% rise in April.
This also surpassed analysts’ expectations of a rise of 0.6%. Year over year, construction spending jumped 2.4% in May, indicating that the sector is slowly but steadily making a rebound after suffering for months owing to rising costs as a result of the Fed’s aggressive interest rate hike policy.
May’s jump was driven by a surge in spending on private construction projects, which advanced 11%. This was led by a 2.2% jump in residential construction projects after declining 0.9% in April.
Spending on the construction of single-family housing projects increased an impressive 1.7% in May. Besides, spending on public construction projects rose 0.1% in May. State and local government spending advanced 0.4%.
The Fed’s monetary tightening policy that saw it hiking interest rates by 500 basis points since March 2022 impacted the housing market big time. Higher mortgage rates compelled buyers to stay away from buying new houses, although demand was high.
The high demand saw an acute shortage in the availability of single-family homes for sale, which is now driving spending on residential projects.
The Fed’s decision to finally halt its interest rate hikes in June is likely to help both homebuilders and buyers, as low borrowing costs will allow them to spend freely.
Also, the Commerce Department said last week that new home sales jumped a solid 12.2% to a seasonally adjusted annual rate of 763,000 units in May, while existing home sales rose 0.2%.
This is also boosting homebuilders’ confidence. The National Association of Home Builders//Wells Fargo preliminary Housing Market Index (HMI) for June came up with a reading of 55, which marked the sixth straight month of a boost in homebuilders’ confidence.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank poised to gain from the rise in spending on construction projects. We narrowed our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lennar Corporation (LEN - Free Report) is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.
Lennar Corporation’s expected earnings growth rate for next year is 3.4%. The Zacks Consensus Estimate for current-year earnings has improved 29.3% over the past 60 days. LEN presently carries a Zacks Rank #1.
KB Home (KBH - Free Report) is a well-known homebuilder in the United States and one of the largest in the state. KB Homes’ revenues are generated from Homebuilding (accounting for 99.7% of fiscal 2021 total revenues) and Financial Services (0.3%) operations. KBH’s homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.
KB Home’s expected earnings growth rate for next year is 10.72%. The Zacks Consensus Estimate for current-year earnings has improved 16.1% over the past 60 days. KBH presently sports a Zacks Rank #1.
Meritage Homes Corporation (MTH - Free Report) is one of the leading designers and builders of single-family homes. The company primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States.
Meritage Homes’ expected earnings growth rate for next year is 9%. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the past 60 days. MTH presently has a Zacks Rank #2.
M.D.C. Holdings, Inc. is engaged in homebuilding and financial services in the United States. MDC’s Homebuilding operations include land acquisition and development, home construction, sales and marketing, as well as customer service. The segment delivers single-family detached homes to first-time and move-up buyers under the name Richmond American Homes.
M.D.C. Holdings’ expected earnings growth rate for next year is 14.4%. The Zacks Consensus Estimate for current-year earnings has improved 39.8% over the past 60 days. MDC presently has a Zacks Rank #1.
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Construction Spending Making Steady Rebound: 4 Stocks to Buy
Spending on construction projects is steadily rising, led by a rebound in the housing market. The Commerce Department said on Jul 1 that spending on construction projects jumped 0.9% in May, following a 0.4% rise in April.
This also surpassed analysts’ expectations of a rise of 0.6%. Year over year, construction spending jumped 2.4% in May, indicating that the sector is slowly but steadily making a rebound after suffering for months owing to rising costs as a result of the Fed’s aggressive interest rate hike policy.
May’s jump was driven by a surge in spending on private construction projects, which advanced 11%. This was led by a 2.2% jump in residential construction projects after declining 0.9% in April.
Spending on the construction of single-family housing projects increased an impressive 1.7% in May. Besides, spending on public construction projects rose 0.1% in May. State and local government spending advanced 0.4%.
The Fed’s monetary tightening policy that saw it hiking interest rates by 500 basis points since March 2022 impacted the housing market big time. Higher mortgage rates compelled buyers to stay away from buying new houses, although demand was high.
The high demand saw an acute shortage in the availability of single-family homes for sale, which is now driving spending on residential projects.
The Fed’s decision to finally halt its interest rate hikes in June is likely to help both homebuilders and buyers, as low borrowing costs will allow them to spend freely.
Also, the Commerce Department said last week that new home sales jumped a solid 12.2% to a seasonally adjusted annual rate of 763,000 units in May, while existing home sales rose 0.2%.
This is also boosting homebuilders’ confidence. The National Association of Home Builders//Wells Fargo preliminary Housing Market Index (HMI) for June came up with a reading of 55, which marked the sixth straight month of a boost in homebuilders’ confidence.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank poised to gain from the rise in spending on construction projects. We narrowed our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lennar Corporation (LEN - Free Report) is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.
Lennar Corporation’s expected earnings growth rate for next year is 3.4%. The Zacks Consensus Estimate for current-year earnings has improved 29.3% over the past 60 days. LEN presently carries a Zacks Rank #1.
KB Home (KBH - Free Report) is a well-known homebuilder in the United States and one of the largest in the state. KB Homes’ revenues are generated from Homebuilding (accounting for 99.7% of fiscal 2021 total revenues) and Financial Services (0.3%) operations. KBH’s homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.
KB Home’s expected earnings growth rate for next year is 10.72%. The Zacks Consensus Estimate for current-year earnings has improved 16.1% over the past 60 days. KBH presently sports a Zacks Rank #1.
Meritage Homes Corporation (MTH - Free Report) is one of the leading designers and builders of single-family homes. The company primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States.
Meritage Homes’ expected earnings growth rate for next year is 9%. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the past 60 days. MTH presently has a Zacks Rank #2.
M.D.C. Holdings, Inc. is engaged in homebuilding and financial services in the United States. MDC’s Homebuilding operations include land acquisition and development, home construction, sales and marketing, as well as customer service. The segment delivers single-family detached homes to first-time and move-up buyers under the name Richmond American Homes.
M.D.C. Holdings’ expected earnings growth rate for next year is 14.4%. The Zacks Consensus Estimate for current-year earnings has improved 39.8% over the past 60 days. MDC presently has a Zacks Rank #1.