Back to top

Image: Bigstock

4 Stocks to Buy as New Home Sales Hit 7-Month High

Read MoreHide Full Article

A clutch of reports released this month suggests that the outlook for the homebuilding sector remains positive and is expected to improve over the rest of the year. Homebuilders’ confidence for March reached the best level in the last 12 years. Additionally, home sales and residential construction data were positive while building materials experienced the largest increase among all the categories mentioned in the retail sales report.

Following these gains, investing in stocks from the homebuilding industry seems to be a lucrative option. Investors willing to ignore short term anomalies would do well to consider these stocks as they add stability and bring steady returns to a portfolio.

New Home Sales Hits Seven-Month High

According to the U.S. Department of Commerce, new single-family houses sales jumped 6.1% last month to hit the 592,000, the highest seasonally adjusted annual rate since Jul 2016. Sales of existing homes decreased 3.7% to a seasonally adjusted annual rate of 5.48 million in February, but increased 5.4% from the year-ago figure, as per the National Association of Realtors (NAR).

Meanwhile, housing starts rose to 1.288 million in February from 1.251 million in January. It reached its highest level in the last four months and came in significantly higher than analysts’ estimates. Privately owned housing starts for single family homes also registered strong increases. Single-family starts registered increases mostly from the West, Northeast and Midwest regions.

Additionally, the forward looking building permit metric rose from January’s revised figure of 807,000 to 832,000 in February. Although, overall privately owned housing units for permits decreased from 1.293 million January to 1.213 million in February, it was up 4.4% year over year.

NAHB Index Hits 12-Year High

Earlier in the month, the NAHB/Wells Fargo builder sentiment index advanced marginally from 65 in February to 71 in March. The index reached its best level since February 2005 and remained well above the 50 mark, indicating improvement in the sector. Any level above 50 indicates that builders’ views about sale conditions are optimistic.

Additionally, NAHB thinks that homebuilders are confident of moderate growth in the index. According to the association’s Chairman, Granger MacDonald, “builders are buoyed by President Trump’s actions on regulatory reform,” especially his decision to repel Obama's 2015 Clean Water Rule or Waters of the US rule.

Building Materials Post Growth

Substantial gains in building materials and furniture stores in February’s retail sales report gave further evidence of steady growth in housing. Retail sales advanced 0.1% in February from the prior month to a seasonally adjusted $474.0 billion. Household spending was broad-based, with sales excluding autos and gasoline advancing 0.2%.

Retail sales were mostly led by a jump of 1.8% in building and supply stores. Also, furniture and home furnishing stores experienced an increase of 0.7% in sales.

Our Choices

Record increase in new home sales, expansion in homebuilders’ confidence index and upbeat housing starts data pushed up housing stocks recently. Adding to this phenomenon has been a year-over-year increase in existing home sales and building permits. Moreover, the benchmark homebuilder index, SPDR S&P Homebuilders (XHB - Free Report) , increased 3.3% in the last one-month period.

Picking stocks from the homebuilder industry looks like a smart option at this point. We have narrowed our search to the following stocks based on a strong Zacks Rank and other relevant metrics.

NVR, Inc. (NVR - Free Report) is a holding company that operates in two business segments; the construction and marketing of homes and in financial services. NVR's homebuilding operations construct and sell single-family detached homes, town-homes and condominium buildings.

NVR has expected earnings growth of 23.6% for the current year. Its earnings estimate for the current year has improved by 5.5% over the last 60 days. It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PulteGroup, Inc. (PHM - Free Report) is a publicly held holding company, which along with its subsidiaries engage in the homebuilding and financial services businesses.

PulteGroup has a Zacks Rank #1. The company has expected earnings growth of 31.5% for the current year. Its earnings estimate for the current year has improved by 9.4% over the last 60 days.

D.R. Horton, Inc. (DHI - Free Report) is one of the leading homebuilders in the U.S. D.R. Horton builds high quality, single-family homes designed principally for the entry-level and move-up markets.

D.R. Horton has a Zacks Rank #2 (Buy). The company has expected earnings growth of 15.6% for the current year. Its earnings estimate for the current year has improved by 2.6% over the last 60 days.

Lennar Corporation (LEN - Free Report) is one of the nation's leading builders of quality homes for all generations, building affordable, move-up and retirement homes. Lennar operates under different brand names: Lennar Homes, U.S. Home, Greystone Homes, Village Builders, etc.

Lennar has a Zacks Rank #2. The company has expected earnings growth of 5.6% for the current year. Its earnings estimate for the current year has improved by 1.5% over the last 60 days.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>

Published in