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5 Stocks Driving Homebuilding ETF to New Highs

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The housing sector has emerged strongly from the COVID-19 pandemic. In fact, the S&P Homebuilders Select Industry Index reached a record high in 15 years early this month, having more than doubled from the low it reached in late March (read: ETFs to Tap as Homebuilder Index Hits High in 15 Years).

Tumbling mortgage rates and higher demand for new homes are driving homebuilders higher. This is because record-low mortgage rates are encouraging people to buy more homes and have made refinance cheaper. This trend is likely to continue at least this year on the Fed’s easy money policy.

Homebuilder confidence has also been rising lately, as builders are feeling better about their business than at any time over the past 20 years. After plunging to 30 in April, the National Association of Home Builders/Wells Fargo Housing Market Index jumped back to 78 in August — the highest level in its 35-year history and matches the record set in December 1998. Housing starts have also risen for three straight months after plunging in March and April. Notably, July home construction jumped the most in nearly four years while existing home sales surged by the most on record (read: ETFs to Shine on Record U.S. Homebuilder Confidence in August).

Moreover, homebuilders are currently well placed, belonging to a top-ranked Zacks industry (placed at the top 2% of 250+ industries), suggesting a solid outlook. However, labor shortage, rising construction costs and high unemployment could remain as causes of concern.

Given the optimistic scenario, iShares U.S. Home Construction ETF (ITB - Free Report) is up nearly 27.9% in the year-to-date timeframe and reached a new 52-week high in the latest session. Let’s take a closer look at the fundamentals of ITB.

ITB in Focus

This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It holds 44 stocks in its basket with heavy concentration on the top two firms. Homebuilding and building products take the largest share at 66.1% and 14.2% of assets, respectively, while home improvement retail and specialty chemicals take a minor portion in the fund’s basket. The product has amassed $2.2 billion in its asset base and trades in a solid volume of around 3.1 million shares a day. It charges investors 42 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (see: all the Materials ETFs here).

Though most of the stocks in the fund’s portfolio delivered strong returns, a few have gained more than 50% so far this year. Below we have highlighted the five best-performing stocks in the ETF with their respective positions in the fund’s basket:

Best-Performing Stocks of ITB

Lumber Liquidators Holdings Inc (LL - Free Report) : The stock has skyrocketed nearly 132% in the year-to-date timeframe. It currently has a Zacks Rank #2 (Buy) and a VGM Score of A. The stock has witnessed solid earnings estimate revision of 88 cents in the past month for this year and has an estimated earnings growth rate of 86.2%. It makes up for 0.2% of the total assets in ITB.

Meritage Homes Corporation (MTH - Free Report) : The stock has surged about 71% in the same timeframe. It has a Zacks Rank #1 (Strong Buy) and a top VGM Score of B. Meritage Homes has seen solid earnings estimate revision of $3.08 for this year over the past month and has an estimated earnings growth rate of 42.8%. The stock accounts for just 2.2% share in ITB. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trex Company Inc. (TREX - Free Report) : This stock ranks 16th in the fund’s basket with 1.7% allocation. It has also delivered robust returns of 66.6% so far this year. It has seen positive earnings estimate revision of 19 cents for this year over the past month and has an estimated earnings growth rate of 15.8%. Trex Company has a Zacks Rank #3 (Hold) and a Growth Score of A.

LGI Homes Inc. (LGIH - Free Report) : This stock claims 1.5% of the assets. It has jumped more than 65% in the same timeframe and has seen solid earnings estimate revision of $1.68 for this year over the past 30 days. Its earnings are expected to grow 30.6% this year. LGI Homes has a Zacks Rank #2 and a VGM Score of B (read: ETFs to Gain on Upbeat U.S. Housing Starts in July).

TopBuild Corp. (BLD - Free Report) : The stock has gained 52.6% in the year-to-date timeframe. It has seen solid earnings estimate revision of $1.05 for this year over the past month and has an expected earnings growth rate of 9.8%. TopBuild sports a Zacks Rank #1 and has a Growth Score of B. The stock occupies the eighth position in the fund’s portfolio, making up for 3.2% share.

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