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4 Stocks to Buy on Solid Jump in Construction Spending
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Construction activity has finally started gathering pace after months of slowdown as inflation continues to ease. Easing price pressures have seen investment in construction projects increasing over the past few months.
The Commerce Department reported that investment in private residential and non-residential projects boosted spending on construction activity in September. Given this scenario, investing in homebuilding stocks like Dream Finders Homes, Inc. (DFH - Free Report) , KB Home (KBH - Free Report) , Lennar Corporation (LEN - Free Report) and Toll Brothers Inc. (TOL - Free Report) would be a wise decision.
Construction Spending Increases
The Commerce Department said earlier this month that spending on construction projects rose a solid 0.4% in September, in line with economists’ expectations. Data for August was also upwardly revised to 1% instead of 0.5% reported earlier.
On a year-over-year basis, spending on construction projects rose 8.7% in September. Spending on private construction projects jumped 0.4% in September after increasing 1% in August. Outlays on private non-residential projects rose 0.1%.
Spending on public construction projects increased 0.4% in September after edging up 0.9% a month earlier. Moreover, spending increased 0.6% on residential construction and jumped 1.3% on single-family homes.
The homebuilding industry had been the mainstay of construction spending during the peak of the pandemic and in the years before that. However, the homebuilding market was hit hard by sky-high mortgage rates as the Federal Reserve adopted an aggressive monetary tightening campaign to bring down multi-decade high inflation.
The Federal Reserve has increased interest rates by 525 basis points since March 2022, which has made buyers shy away from the housing market. Also, higher raw material and labor costs have been pushing up home prices.
However, a massive shortage of previously owned homes is driving new construction, which is eventually boosting spending. Although the 30-year fixed mortgage is hovering around the 8% mark, buyers are still not hesitant about purchasing homes.
The good sign is that the Fed has kept its benchmark interest rates in the range of 5.25-5.5% in its last two meetings. Although inflation continues to be high and the Fed is still open to more interest rate hikes, expectations are high that the central bank might end its monetary tightening campaign soon as the labor market is finally showing signs of slowing.
Low borrowing costs definitely bode well for the construction sector and the overall economy.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank that are poised to gain from the rise in spending on construction projects. We narrowed down 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.
Dream Finders Homes, Inc. is a homebuilding company. DFH operates principally in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia and Maryland. Dream Finders Homes is based in Jacksonville, FL.
Dream Finders Homes has an expected earnings growth rate of 10.1% for next year. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the last 60 days. DFH presently sports a Zacks Rank #1.
KB Home is a well-known homebuilder in the United States and one of the largest in the state. 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 7.4%. The Zacks Consensus Estimate for current-year earnings has improved 10% over the past 60 days. KBH currently carries a Zacks Rank #2.
Lennar Corporation 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 8.2%. The Zacks Consensus Estimate for current-year earnings has improved 8.1% over the past 60 days. LEN presently carries a Zacks Rank #2.
Toll Brothers Inc. 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. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania, and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.
Toll Brothers’ expected earnings growth rate for the current year is 1.5%. The Zacks Consensus Estimate for current-year earnings improved 12.3% over the past 90 days. Toll Brothers presently sports a Zacks Rank #1.
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4 Stocks to Buy on Solid Jump in Construction Spending
Construction activity has finally started gathering pace after months of slowdown as inflation continues to ease. Easing price pressures have seen investment in construction projects increasing over the past few months.
The Commerce Department reported that investment in private residential and non-residential projects boosted spending on construction activity in September. Given this scenario, investing in homebuilding stocks like Dream Finders Homes, Inc. (DFH - Free Report) , KB Home (KBH - Free Report) , Lennar Corporation (LEN - Free Report) and Toll Brothers Inc. (TOL - Free Report) would be a wise decision.
Construction Spending Increases
The Commerce Department said earlier this month that spending on construction projects rose a solid 0.4% in September, in line with economists’ expectations. Data for August was also upwardly revised to 1% instead of 0.5% reported earlier.
On a year-over-year basis, spending on construction projects rose 8.7% in September. Spending on private construction projects jumped 0.4% in September after increasing 1% in August. Outlays on private non-residential projects rose 0.1%.
Spending on public construction projects increased 0.4% in September after edging up 0.9% a month earlier. Moreover, spending increased 0.6% on residential construction and jumped 1.3% on single-family homes.
The homebuilding industry had been the mainstay of construction spending during the peak of the pandemic and in the years before that. However, the homebuilding market was hit hard by sky-high mortgage rates as the Federal Reserve adopted an aggressive monetary tightening campaign to bring down multi-decade high inflation.
The Federal Reserve has increased interest rates by 525 basis points since March 2022, which has made buyers shy away from the housing market. Also, higher raw material and labor costs have been pushing up home prices.
However, a massive shortage of previously owned homes is driving new construction, which is eventually boosting spending. Although the 30-year fixed mortgage is hovering around the 8% mark, buyers are still not hesitant about purchasing homes.
The good sign is that the Fed has kept its benchmark interest rates in the range of 5.25-5.5% in its last two meetings. Although inflation continues to be high and the Fed is still open to more interest rate hikes, expectations are high that the central bank might end its monetary tightening campaign soon as the labor market is finally showing signs of slowing.
Low borrowing costs definitely bode well for the construction sector and the overall economy.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank that are poised to gain from the rise in spending on construction projects. We narrowed down 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.
Dream Finders Homes, Inc. is a homebuilding company. DFH operates principally in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia and Maryland. Dream Finders Homes is based in Jacksonville, FL.
Dream Finders Homes has an expected earnings growth rate of 10.1% for next year. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the last 60 days. DFH presently sports a Zacks Rank #1.
KB Home is a well-known homebuilder in the United States and one of the largest in the state. 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 7.4%. The Zacks Consensus Estimate for current-year earnings has improved 10% over the past 60 days. KBH currently carries a Zacks Rank #2.
Lennar Corporation 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 8.2%. The Zacks Consensus Estimate for current-year earnings has improved 8.1% over the past 60 days. LEN presently carries a Zacks Rank #2.
Toll Brothers Inc. 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. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania, and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.
Toll Brothers’ expected earnings growth rate for the current year is 1.5%. The Zacks Consensus Estimate for current-year earnings improved 12.3% over the past 90 days. Toll Brothers presently sports a Zacks Rank #1.