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US New-Home Sales Hit 6-Month High: 4 Hot Picks

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Riding on improved macroeconomic outlook, U.S. new home sales in May were the best in the past six months, despite high selling prices. Sales in the South secured the biggest gain in over a decade.

Lesser purchasing options in existing homes has shifted home-buyers’ demand toward new builds. The country’s housing starts jumped to an 11-year high last month and builders’ confidence gauge is higher than the desired threshold so far this year.

Irrespective of the White House trade spat with Canada and other supply-side constraints, the American housing market will likely move north in the second quarter, on the back of overall economic growth, a favorable job market scenario, lower taxes and robust residential demand.

Given this backdrop, it makes good sense to invest in stocks that are poised to gain from strong housing data.

New-Home Sales Rebound in May

Monday’s Commerce Department report revealed that the number of new home sales in May was the highest since November 2017. Reversing April’s drop, aggregate sales of newly constructed homes came in at 689,000, exceeded the prior month’s reading by 6.7%. The upside was primarily driven by robust sales in the South. New-home sales in the region soared 17.9%, marking the strongest growth since 2007. Demand was somewhat mixed in other parts of the United States.

Last month’s tally also outpaced the year-ago record by 14.1%. So far in 2018, new home sales in the United States have enjoyed a year-over-year growth rate of 8.8%. Also, median sales price of new homes dipped 3.3% year over year to $313,000.

Homebuilders to Shrug-Off Supply-Side Setbacks

The housing market is currently plagued with supply-side constraints. Stretched home inventory is pushing up selling prices. The 20% lumber tariffs imposed on Canada by the Trump administration is costing American homebuilders pretty high. Also, headwinds like higher mortgage rates and scarce construction workforce remains causes of concern.

However, sturdier economic growth, increased job creation, lower taxes, upbeat wage rates, and robust housing demand will likely spur new residential construction activity in the months ahead.

So far this year, the National Association of Home Builders’ (NAHB) confidence index has averaged 70, a feat not accomplished even at the prime time of the U.S. housing bubble. Moreover, a higher-than-50 reading in June’s index reflects improving home building market conditions in the United States. Average new-home sales in first-quarter 2018 were 656,000, and the April-May average currently stands at 667,000, signifying that the uptrend is in place.  

Additionally, May’s housing starts jumped 5%, marking its best advance since July 2007. Single-family homebuilding improved 3.9% in the month and multi-family residential construction activity secured 7.5% growth. Also, May’s retail sales report revealed improving U.S. housing market conditions, as sales at the building-materials stores improved 2.4% on a month-over-month basis.

Four Top Homebuilding Stocks

Recoil in May’s new home sales clearly indicates that an increasing number of people are showing interest in buying homes. Also, sturdy homebuilders’ confidence index and upbeat housing starts data make the industry outlook bullish.

In sync with this, picking stocks from the homebuilder industry will be a smart investment option at this point. Below, we have handpicked four top-ranked homebuilding stocks that will likely add a sparkle to your portfolio. These companies carry a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) and have witnessed positive earnings estimate revisions for the past 60 days.

M.D.C. Holdings, Inc. (MDC - Free Report) provides financial and homebuilding services.

The Zacks Consensus Estimate for earnings has moved up 15.1% to $3.44 per share 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for this Colorado-based company is currently pegged at 33.3% and 10.8% for 2018 and 2019, respectively. M.D.C. Holdings’ shares have gained 47.1% in the past two years. The company 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) is a renowned homebuilder that constructs, designs, and sells multi- and single-family homes.

The company holds a Zacks Rank #2. The Zacks Consensus Estimate for earnings has moved up 3.1% to $1.64 per share for fiscal 2018 (ending September 2018), in the last 60 days. Notably, the projected year-over-year earnings growth rate for this Georgia-based company is currently pegged at 6.5% and 37.2% for fiscal 2018 and 2019, respectively. Beazer Homes’ shares have gained 108.5% in the past two years.

Meritage Homes Corporation (MTH - Free Report) builds and designs single-family homes.

The company carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings has moved up 5.3% to $5.53 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for this Arizona-based company is currently pegged at 42.5% and 5.9% for 2018 and 2019, respectively. Meritage Homes’ shares have gained 23.7% in the past two years.

Sterling Construction Company Inc (STRL - Free Report) is a premium residential and heavy civil construction company.

The company holds a Zacks Rank #2. The Zacks Consensus Estimate for earnings has moved up 3.3% to 94 cents per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for this Texas-based company is currently pegged at 70.9% and 37.2% for 2018 and 2019, respectively. Sterling Construction’s shares have gained 175.6% in the past two years.

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