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6 Winning Stocks to Buy as Housing Starts Hit 11-Yr High

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U.S. homebuilding rebounded in May, surging to its highest level since 2007. Both single-family and multi-family housing starts experienced an upswing. The increase was fueled by a spurt in construction in regions that capitalized most of the economic recovery and the apartment boom that followed.

The only discordant note in the report was a drop in building permits, which hinted at the supply constraints hampering the market. However, economists believe a higher level of housing inventory will become available later in the year.

Further, a strong labor market, tax cuts and improved finances are supporting prospective buyers. This is why investing in stocks benefiting from the pickup in housing looks like a smart option at this point.

Starts Highest Since July 2007

In May, housing starts increased by 5% to a seasonally adjusted annual rate of 1.35 million units. This is the highest level recorded since July 2007 and represents a rebound from April’s decline of 3.7%. April’s figure was also revised marginally upward from the previously reported 1.286 million units to 1.287 million units.

Higher building activity in the Midwest was the primary reason for the upswing in housing starts. Construction in the region increased by 62.2%, the highest monthly increase recorded since September 2006. These gains helped to outweigh declines witnessed in other regions including the Northeast and South. 

Single-Family Homebuilding Gains, Permits Fall

Single-family housing starts increased from 901,000 by 10.6% to 936,000. This is the highest level recorded since November 2017. Single-family homes make up the lion’s share of the housing market and are nearly always built for sale.

This is why an increase in this segment indicates that the purchase market and the wider economy are in fine fettle. Multi-family housing starts rebounded, increasing from 385,000 by 7.5% to 414,000.

However, building permits declined by 4.6% to 1.3 million units. This is the lowest level recorded since September 2017. But this still represents an 8% year-over-year increase. Additionally, permits increased in the Midwest and Northeast.

This indicates that housing demand is largely intact. Prospective buyers are continuing to receive support from a cut in taxes, better finances and a robust labor market.

Our Choices

The strong rebound in housing starts bolsters the view that 2018 is likely to be a strong year for the housing sector. Also, homebuilders have responded to the problem of tight supplies by stepping up construction of single-family homes. This is likely to address supply concerns in the months ahead.

Adding stocks that are gaining from the uptrend in residential homebuilding to your portfolio looks like a smart option at this point. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

American Woodmark Corporation (AMWD - Free Report) is a manufacturer and distributor of kitchen and bath cabinets for the home construction and remodeling markets in the United States. 

American Woodmark has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 44.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 25.6% over the last 30 days.

Boise Cascade Company (BCC - Free Report) operates as a wood products manufacturer and building materials distributor.

Boise Cascade has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 74.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 25.1% over the last 60 days.

PGT Innovations, Inc. (PGTI - Free Report) is a leading manufacturer and supplier of residential impact-resistant windows and doors.

PGT Innovations has a VGM Score of B. The company has expected earnings growth of 53% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA, Inc. (BZH - Free Report) designs, builds and sells single family homes.

Beazer Homes has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 6.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 60 days.

Meritage Homes Corporation (MTH - Free Report) is a designer and builder of single-family homes in the United States.

Meritage Homes carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 42.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.3% over the last 60 days.

Armstrong World Industries, Inc. (AWI - Free Report) is a leading global producer of ceiling systems for use primarily in the construction and renovation of commercial, institutional and residential buildings.

Armstrong World Industries has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 22.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days.

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