Back to top

Image: Bigstock

Builder Confidence Remains Near All-Time High: 5 Top Picks

Read MoreHide Full Article

Per National Association of Home Builders (NAHB), builder sentiment in the housing market remained near all-time high in February with monthly confidence index coming in at 74 — just two points below the all-time high figure recorded in December. Moreover, the composite index registered an annual growth of 19.35% compared with the year-ago comparable period. Further, any reading above the 50 mark clearly underscores the positive sentiment surrounding the space with all signs pointing to rising confidence.

The three major indicators — the index of expectations for future sales, gauge of current single-family home sales and one that measures sentiment regarding prospective buyer did drop one point each this month but remained at higher levels compared with prior year. NAHB chairman Dean Mon further clarified that even though construction and development costs have gone up, lower interest rates, healthy job additions and rise in wages helped instill builder confidence.

Mortgage rates have recently hit a three-year low, which in turn has been boosting the country’s housing market. It is quite obvious that lower cost of home financing propped up demand among potential buyers. Notably, mortgage rates fell from the previous year as a result of the Fed cutting interest rates thrice last year.

In the meantime, the U.S. economy has been steadily adding new jobs as Americans continue to return to the labor force. Further, wage growth has improved. According to the Labor Department, the United States added a massive 225,000 jobs last month, way higher than analyst expectations of 160,000 jobs. It was also up from December’s upwardly revised number of 147,000. In addition to December’s positive revision, non-farm payrolls for the month of November increased by 5,000 to 256,000. And that means the economy added an average of 211,000 new jobs in the past three months, a significant rise from last summer.

Average hourly earnings rose 3.1% in January. Wages, in fact, surpassed estimates of 3% growth. Even though wage growth is below the post-recession peak of 3.5%, it is steady enough to sustain household spending, something that bodes well for home-builders.

Notably, millennials are anticipated to play a crucial role in driving the housing market this year. Most of these individuals will turn 30 next year and consider buying their first home. In fact, millennials are expected to take half of all mortgages next year, surpassing both Generation X and Baby Boomers, per realtor.com.

The report states that demand for especially entry-level homes will pick up, courtesy of millennials driving overall demand. In fact, buyers will certainly benefit from almost flat home prices, which are anticipated to increase only 0.8%. The report added that home prices may even decline in cities such as Dallas, Las Vegas, Miami, Chicago and San Francisco.

5 Solid Choices

Given the positives, investing in housing-related stocks, which can make the most of the improved homebuilder sentiment this year, seems judicious. We have, thus, selected five such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

KB Home (KBH - Free Report) operates as a homebuilding company in the United States. It operates in four segments: West Coast, Southwest, Central, and Southeast. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has advanced 6.1% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, anticipates earnings growth of 41.9% and 29.1% in the current quarter and year, respectively.

M.D.C. Holdings, Inc. (MDC - Free Report) engages in homebuilding businesses in the United States. It is involved in the construction, sale and related financing of residential housing. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 4.3% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, expects earnings growth of 14.1% and 15.1% in the current and next quarter, respectively.

PulteGroup, Inc. (PHM - Free Report) primarily engages in the homebuilding business in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 5.4% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, projects earnings growth of 18.6% and 17.2% in the current and next quarter, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

D.R. Horton, Inc. (DHI - Free Report) operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest, and West regions in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has jumped 7.8% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, anticipates earnings growth of 20.4% and 23.1% in the current quarter and year, respectively.

Tempur Sealy International, Inc. (TPX - Free Report) develops, manufactures, markets, and distributes bedding products. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 2% over the past 60 days. The company, which is part of the Retail - Home Furnishings industry, expects earnings growth of 66.7% and 41.2% in the current quarter and year, respectively.

Shares of KB Home, M.D.C. Holdings, PulteGroup, D.R. Horton and Tempur Sealy International have gained 15.7%, 16.9%, 20.2%, 17.2% and 8.7%, respectively, so far this year. Have a look –

 

Free: Zacks’ Single Best Stock Set to Double

Today you are invited to download our latest Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.

See 5 Stocks Set to Double>>