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Homebuilding Continues to Drive Construction Spending: 6 Picks

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The economy is gradually getting back on track. One of its biggest proofs is that construction work is gathering steam. Spending on construction projects in the United States rose in June, driven by private-sector projects.

The economy took a bad hit during the peak of the pandemic but with more people getting vaccinated and the economy gradually reopening, spending on construction activity has started picking up. And the homebuilding sector has been majorly responsible for this rise in construction activity.

Construction Spending Increases

Per the latest data released by the Commerce Department on Aug 2, construction spending increased 0.1% to a seasonally adjusted annual rate of $1,552.2 billion in June from May’s revised estimate of $1,551.2 billion. On a year-over-year basis, spending on construction activity increased 8.2%, after declining 0.2% in May.

June’s gains were driven by increased spending on private projects such as new single-family homes. Spending on private projects grew 0.4% in June to a seasonally adjusted annual rate of $1,215.2 billion.

The homebuilding market has been attracting spending on construction activity since last year and the momentum has stayed on. Spending increased 1.1%on residential construction and1.8% on single-family home construction.

However, spending on non-residential construction like gas and oil well drilling declined 0.7% in June.  Also, spending on public construction projects fell 1.2% in June after a 0.8% decline in May.

Residential ConstructionSpending on the Rise

Last week, the Commerce Department had reported that new home sales declined 6.6% in May on a month-over-month basis. Even then, spending on new residential construction projects has been rising, as demand for housing continues to be robustdespite rising costs of building materials, especially lumber. Ever since the economy started reopening, construction spending has been on the rise except for some decline in between.

The Commerce Department also said that construction spending during the first six months of this year increased 5.4% or $736.5 billion on a year-over-year basis. This once again shows the smooth pace at which spending on construction activity is increasing.

Our Choices

Demand for new homes in the United States has been on the rise owing to record-low mortgage rates. Private residential construction spending has also picked up to cater to the escalating demand for new homes, thus creating the right opportunity to invest in homebuilding stocks.

KB Home (KBH - Free Report) is a well-known homebuilder in the United States. The company’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands.

The company’s expected earnings growth rate for the current year is 99.4%. The Zacks Consensus Estimate for current-year earnings has improved 9.8% over the past 60 days.  Its shares have gained 26.9% on a year-to-date basis. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lennar Corporation (LEN - Free Report)  is engaged in homebuilding and financial services in the United States. The company’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.

The company’s expected earnings growth rate for the current year is 72.5%. The Zacks Consensus Estimate for current-year earnings has improved 17.3% over the past 60 days. Its shares have gained 39% year to date. The company carries a Zacks Rank #1.

Toll Brothers Inc. (TOL - Free Report)  builds single-family detached and attached home communities; master-planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves.

The company’s expected earnings growth rate for the current year is 65%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. Its shares have gained 36.1% year to date. The company has a Zacks Rank #2.

NVR, Inc. (NVR - Free Report) is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis.

The company’s expected earnings growth rate for the current year is 51.3%. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the past 60 days. Its shares have gained 28.6% year to date. The company sports a Zacks Rank #1.

Century Communities, Inc. (CCS - Free Report) is a home building and construction company. Its activities comprise land acquisition, development and entitlements; and the acquisition, development, construction, marketing, and sale of various single-family detached and attached residential home projects. 

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. Its shares have gained 62.8% year to date. Century Communities sports a Zacks Rank #1.

Beazer Homes USA, Inc. (BZH - Free Report) designs, builds and sells single-family homes. The company designs homes to appeal primarily to entry-level and first move-up home buyers. 

The company’s expected earnings growth rate for the current year is 73%. The Zacks Consensus Estimate for current-year earnings has improved 9% over the past 60 days. Its shares have gained 18.8% year to date. The company has a Zacks Rank #2.