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4 Stocks to Watch as Construction Spending Gathers Pace
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The construction sector is making a slow but steady recovery as demand continues to rebound amid easing inflation. Although spending on construction projects came in lower than expectations, it was sharply higher month over month.
The Commerce Department said that spending on construction projects increased as soaring confidence owing to cooling inflation is attracting more investments.
Construction spending rose 0.4% month over month in November, growing for the 11th straight month. However, data for October was revised up, showing that spending on construction projects rose 1.2% instead of the earlier reported 0.6%.
Year over year, construction spending jumped 11.3% in November. Spending on private construction projects rose 0.7% in November on a month-over-month basis.
Homebuilding has been the mainstay of construction spending for months. However, soaring mortgage rates owing to the Federal Reserve’s aggressive monetary tightening campaign to curb sky-high inflation saw people shying away from buying homes in 2023.
However, inflation has been declining sharply over the past year. The construction sector is getting a push primarily from the new single-family housing segment, driven by a significant shortage of pre-owned homes in the market.
Spending on residential projects rose 1.1% month over month in November. Outlays on new single-family homes advanced 2.9%.
Moreover, President Joe Biden's administration is contributing to this trend by implementing a policy aimed at bringing semiconductor manufacturing back to the United States. This initiative is playing a role in the construction of new factories.
Also, slowing inflation has seen the Federal Reserve leaving its benchmark policy rate steady in its current range of 5.25-5.50% in its past three FOMC meetings. The 30-year fixed mortgage rate has now fallen below 7%, which bodes well for the homebuilding market.
Our Choices
Given this situation, the housing market is expected to perform well in 2024 as the Fed gears up to cut rates this year. Investing in homebuilding stocks thus appears to be a wise decision. We have narrowed down our search to four such homebuilding stocks. Each of these stocks carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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 3.9%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 60 days. MDC presently has a Zacks Rank #3.
D.R. Horton (DHI - Free Report) is one of the leading national homebuilders, primarily engaged in the construction and the sale of single-family houses both in the entry-level and move-up markets. DHI’s operations are spread over 91 markets across 29 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States. D.R. Horton’s houses are sold under the brand names D.R. Horton - America’s Builder, Emerald Homes, Express Homes and Freedom Homes.
D.R. Horton’s expected earnings growth rate for the current year is 2.5%. The Zacks Consensus Estimate for current-year earnings has improved 5% over the past 60 days. DHI has a Zacks Rank #3.
PulteGroup (PHM - Free Report) engages in homebuilding and financial services businesses, primarily in the United States. PHM conducts operations through two primary business segments — Homebuilding (which accounted for 97.2% of 2021 total revenues) and Financial Services (2.8%). PulteGroup’s Homebuilding segment offers a wide variety of home designs, including single-family detached, townhouses, condominiums and duplexes at different prices, with a variety of options and amenities to all major customer segments: first-time, move-up and active adult.
PulteGroup’s expected earnings growth rate for the current year is 6.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past 60 days. PHM has a Zacks Rank #2.
Dream Finders Homes, Inc. (DFH - Free Report) 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 2.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the last 60 days. DFH presently has a Zacks Rank #2.
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4 Stocks to Watch as Construction Spending Gathers Pace
The construction sector is making a slow but steady recovery as demand continues to rebound amid easing inflation. Although spending on construction projects came in lower than expectations, it was sharply higher month over month.
The Commerce Department said that spending on construction projects increased as soaring confidence owing to cooling inflation is attracting more investments.
Construction spending rose 0.4% month over month in November, growing for the 11th straight month. However, data for October was revised up, showing that spending on construction projects rose 1.2% instead of the earlier reported 0.6%.
Year over year, construction spending jumped 11.3% in November. Spending on private construction projects rose 0.7% in November on a month-over-month basis.
Homebuilding has been the mainstay of construction spending for months. However, soaring mortgage rates owing to the Federal Reserve’s aggressive monetary tightening campaign to curb sky-high inflation saw people shying away from buying homes in 2023.
However, inflation has been declining sharply over the past year. The construction sector is getting a push primarily from the new single-family housing segment, driven by a significant shortage of pre-owned homes in the market.
Spending on residential projects rose 1.1% month over month in November. Outlays on new single-family homes advanced 2.9%.
Moreover, President Joe Biden's administration is contributing to this trend by implementing a policy aimed at bringing semiconductor manufacturing back to the United States. This initiative is playing a role in the construction of new factories.
Also, slowing inflation has seen the Federal Reserve leaving its benchmark policy rate steady in its current range of 5.25-5.50% in its past three FOMC meetings. The 30-year fixed mortgage rate has now fallen below 7%, which bodes well for the homebuilding market.
Our Choices
Given this situation, the housing market is expected to perform well in 2024 as the Fed gears up to cut rates this year. Investing in homebuilding stocks thus appears to be a wise decision. We have narrowed down our search to four such homebuilding stocks. Each of these stocks carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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 3.9%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 60 days. MDC presently has a Zacks Rank #3.
D.R. Horton (DHI - Free Report) is one of the leading national homebuilders, primarily engaged in the construction and the sale of single-family houses both in the entry-level and move-up markets. DHI’s operations are spread over 91 markets across 29 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States. D.R. Horton’s houses are sold under the brand names D.R. Horton - America’s Builder, Emerald Homes, Express Homes and Freedom Homes.
D.R. Horton’s expected earnings growth rate for the current year is 2.5%. The Zacks Consensus Estimate for current-year earnings has improved 5% over the past 60 days. DHI has a Zacks Rank #3.
PulteGroup (PHM - Free Report) engages in homebuilding and financial services businesses, primarily in the United States. PHM conducts operations through two primary business segments — Homebuilding (which accounted for 97.2% of 2021 total revenues) and Financial Services (2.8%). PulteGroup’s Homebuilding segment offers a wide variety of home designs, including single-family detached, townhouses, condominiums and duplexes at different prices, with a variety of options and amenities to all major customer segments: first-time, move-up and active adult.
PulteGroup’s expected earnings growth rate for the current year is 6.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past 60 days. PHM has a Zacks Rank #2.
Dream Finders Homes, Inc. (DFH - Free Report) 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 2.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the last 60 days. DFH presently has a Zacks Rank #2.