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5 Construction Stocks to Sail Through the Choppy Housing Market
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The U.S. homebuilders are pessimistic about 2023 and expect 2024 to show some recovery. This is due to inflationary pressure, supply-chain disruptions, labor and transportation woes and heightened affordability issues. The Builder confidence for newly built single-family homes continued to fall for the 12th straight month in December by two points, per the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marked the lowest reading since mid-2012, barring May 2020.
The negative builder sentiment can be seen in the future performance of the most relatable housing statistics. In November, building permits and housing starts declined 11.2% and 0.5% from October, and 22.4% and 16.4% from November 2021, respectively. Also, existing-home sales declined 7.7% from a month ago and 35.4% year over year. Sales of new single-family houses in November rose 5.8% from October but were 15.3% below November 2021 level. These metrics are likely to remain downward in December 2022 as well.
Federal Reserve’s move to tighten monetary policy and curb inflation is a major concern for homebuilders and buyers. Homebuilders are bound to increase home prices as they suffer from elevated material and labor costs. This and strikingly higher mortgage rates make it difficult for buyers to buy new homes.
But investors might sense relief at the end of the year as the recent inflation, material prices and mortgage rates data are encouraging. In November, Consumer Price Index (CPI) or inflation rose by 0.1% from October. Adding to the positives, prices of building materials dropped 0.3% in November from a month ago. The 30-year fixed-rate mortgage continued to fall to 6.27% for the week ending Dec 22 from 7.08% on Nov 10 week. Per the latest Conference Board data, U.S. consumer confidence also rose to an eight-month high in December to 108.3.
Although these point to a positive tone for housing and related industries, builders are not in favor of a rebound in the next few months.
The above-mentioned Zacks Construction sector stocks are selected with the help of the Zacks Stock Screener. Our research shows such stocks offer good investment opportunities.
The suggested stocks might have declined due to the ongoing headwinds but have a solid earnings growth rate and are expected to perform well in 2023. This positive trend signifies bullish analyst sentiment, indicating robust fundamentals and the expectation of outperformance in the near term.
Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and solid backlog level.
Although TOL carries a Zacks Rank #3 (Hold), its solid prospects is encouraging. Fiscal 2023 earnings of Toll Brothers moved up to $8.01 per share from $7.22 in the past 30 days. The stock has gained 18% over the past three months.
Comfort Systems company is a national provider of comprehensive heating, ventilation and air conditioning installation along with maintenance, repair and replacement services. A solid backlog level and substantial ongoing investments in training, productivity and technology are expected to drive growth. Overall positive trends — primarily in industrial, technology, and manufacturing markets served by the company — as well as accretive buyouts are encouraging. The acquisitions have expanded its scale, increased recurring service revenues, and enhanced expertise in complex markets, including industrial, technology and life sciences.
Comfort Systems has gained 18.5% over the past three months. The company is expected to witness 17.7% earnings growth in 2023. The Zacks Consensus Estimate for next-year earnings has improved to $6.05 per share from $5.91 in the past 60 days.
AAON engineers, manufactures and markets air conditioning as well as heating equipment. The company maintains a balance between new construction and replacement applications and is making the most of robust replacement demand, broadly across the non-residential building market. Despite inflationary cost pressures, the BasX acquisition, which was closed in December 2021, has been delivering solid results for AAON. While supply-chain issues and inflation caused similar issues, BasX has been flexible in adapting to challenges.
AAON has gained 36.2% over the past three months. Earnings are expected to grow 50% in 2023.
LSI Industries makes high-quality lighting solutions primarily targeted at petroleum convenience stores, multisite retail and commercial industrial lighting markets.
LYTS has gained 61.5% in the past three months. The Zacks Consensus Estimate for fiscal 2023 and fiscal 2024 earnings has improved to 76 cents per share and 83 cents per share from 69 cents per share and 83 cents per share, respectively, in the past 60 days. These indicate 18.8% and 9.2% year-over-year growth for fiscal 2023 and fiscal 2024, respectively.
Janus manufactures and supplies turn-key self-storage and commercial and industrial building solutions. Solid backlog levels, an impressive project pipeline, productivity improvements and commercial actions, including pricing, are expected to drive growth. The company is expected to benefit from its one-stop-shop offering with a leading market share in self-storage doors and related design and installation services.
Janus’ earnings for 2023 are expected to rise 16.9% year over year. The Zacks Consensus Estimate for next-year earnings has improved to 88 cents per share from 80 cents per share in the past 60 days. The stock has gained 2.5% in the past three months.
The chart below shows the price performance of our five picks for past three months.
Image Source: Zacks Investment Research
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5 Construction Stocks to Sail Through the Choppy Housing Market
The U.S. homebuilders are pessimistic about 2023 and expect 2024 to show some recovery. This is due to inflationary pressure, supply-chain disruptions, labor and transportation woes and heightened affordability issues. The Builder confidence for newly built single-family homes continued to fall for the 12th straight month in December by two points, per the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marked the lowest reading since mid-2012, barring May 2020.
The negative builder sentiment can be seen in the future performance of the most relatable housing statistics. In November, building permits and housing starts declined 11.2% and 0.5% from October, and 22.4% and 16.4% from November 2021, respectively. Also, existing-home sales declined 7.7% from a month ago and 35.4% year over year. Sales of new single-family houses in November rose 5.8% from October but were 15.3% below November 2021 level. These metrics are likely to remain downward in December 2022 as well.
Federal Reserve’s move to tighten monetary policy and curb inflation is a major concern for homebuilders and buyers. Homebuilders are bound to increase home prices as they suffer from elevated material and labor costs. This and strikingly higher mortgage rates make it difficult for buyers to buy new homes.
But investors might sense relief at the end of the year as the recent inflation, material prices and mortgage rates data are encouraging. In November, Consumer Price Index (CPI) or inflation rose by 0.1% from October. Adding to the positives, prices of building materials dropped 0.3% in November from a month ago. The 30-year fixed-rate mortgage continued to fall to 6.27% for the week ending Dec 22 from 7.08% on Nov 10 week. Per the latest Conference Board data, U.S. consumer confidence also rose to an eight-month high in December to 108.3.
Although these point to a positive tone for housing and related industries, builders are not in favor of a rebound in the next few months.
Defying the prevailing headwinds, we have highlighted five stocks, Toll Brothers, Inc. (TOL - Free Report) from the Zacks Building Products - Home Builders industry, AAON Inc. (AAON - Free Report) and Comfort Systems USA, Inc. (FIX - Free Report) from the Zacks Building Products - Air Conditioner and Heating industry, LSI Industries Inc. (LYTS - Free Report) from the Zacks Building Products - Lighting industry and Janus International Group, Inc. (JBI - Free Report) from the Zacks Building Products - Miscellaneous industry, that are poised to gain traction in the near term.
Other than Toll Brothers, these stocks boast a solid Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
A Look at the Above-Mentioned Stocks’ Prospects
The above-mentioned Zacks Construction sector stocks are selected with the help of the Zacks Stock Screener. Our research shows such stocks offer good investment opportunities.
The suggested stocks might have declined due to the ongoing headwinds but have a solid earnings growth rate and are expected to perform well in 2023. This positive trend signifies bullish analyst sentiment, indicating robust fundamentals and the expectation of outperformance in the near term.
Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and solid backlog level.
Although TOL carries a Zacks Rank #3 (Hold), its solid prospects is encouraging. Fiscal 2023 earnings of Toll Brothers moved up to $8.01 per share from $7.22 in the past 30 days. The stock has gained 18% over the past three months.
Comfort Systems company is a national provider of comprehensive heating, ventilation and air conditioning installation along with maintenance, repair and replacement services. A solid backlog level and substantial ongoing investments in training, productivity and technology are expected to drive growth. Overall positive trends — primarily in industrial, technology, and manufacturing markets served by the company — as well as accretive buyouts are encouraging. The acquisitions have expanded its scale, increased recurring service revenues, and enhanced expertise in complex markets, including industrial, technology and life sciences.
Comfort Systems has gained 18.5% over the past three months. The company is expected to witness 17.7% earnings growth in 2023. The Zacks Consensus Estimate for next-year earnings has improved to $6.05 per share from $5.91 in the past 60 days.
AAON engineers, manufactures and markets air conditioning as well as heating equipment. The company maintains a balance between new construction and replacement applications and is making the most of robust replacement demand, broadly across the non-residential building market. Despite inflationary cost pressures, the BasX acquisition, which was closed in December 2021, has been delivering solid results for AAON. While supply-chain issues and inflation caused similar issues, BasX has been flexible in adapting to challenges.
AAON has gained 36.2% over the past three months. Earnings are expected to grow 50% in 2023.
LSI Industries makes high-quality lighting solutions primarily targeted at petroleum convenience stores, multisite retail and commercial industrial lighting markets.
LYTS has gained 61.5% in the past three months. The Zacks Consensus Estimate for fiscal 2023 and fiscal 2024 earnings has improved to 76 cents per share and 83 cents per share from 69 cents per share and 83 cents per share, respectively, in the past 60 days. These indicate 18.8% and 9.2% year-over-year growth for fiscal 2023 and fiscal 2024, respectively.
Janus manufactures and supplies turn-key self-storage and commercial and industrial building solutions. Solid backlog levels, an impressive project pipeline, productivity improvements and commercial actions, including pricing, are expected to drive growth. The company is expected to benefit from its one-stop-shop offering with a leading market share in self-storage doors and related design and installation services.
Janus’ earnings for 2023 are expected to rise 16.9% year over year. The Zacks Consensus Estimate for next-year earnings has improved to 88 cents per share from 80 cents per share in the past 60 days. The stock has gained 2.5% in the past three months.
The chart below shows the price performance of our five picks for past three months.
Image Source: Zacks Investment Research