Yahoo Finance 4 Solid Stocks to Buy on a Jump in Construction Spending
Spending on construction projects has been on a steady rise over the past couple of months. This comes despite rising prices, with inflation still at multi-year highs. However, inflation has started showing signs of easing, and expectations are high among investors that the Fed might finally pause hiking interest rates in its June meeting.
The latest data from the Commerce Department shows that construction spending increased in April for the second straight month. The jump was primarily driven by spending on private projects. This comes as homebuilding data showed that home prices have been steadily falling, leading to a rise in sales of new homes. Against this backdrop, stocks like KB Home KBH, Beazer Homes USA, Inc. BZH, D.R. Horton, Inc. DHI and Meritage Homes Corporation MTH are likely to benefit.
Construction Spending Rebounds
The Commerce Department said on Jun 1 that spending on construction projects in the United States jumped a solid 1.2% in April, which came in above the consensus estimate of a rise of 0.2%. Construction spending rose 0.3% in March.
On a year-over-year basis, construction spending rose 7.2% in April. Spending on private construction projects jumped 1.3%. Spending on private nonresidential projects like gas and oil well drilling grew 2.4%.
The homebuilding industry, which has suffered the most owing to the Fed’s steep rate hikes in its bid to tame soaring inflation, has also been showing a steady rebound as spending on residential construction increased 0.5%. Also, spending on outlays on multi-family housing projects rose 0.6% in May.
Also, spending on public construction projects climbed 1.1% in May.
The homebuilding industry helped the construction sector during the peak of the pandemic when home sales hit record highs. However, sales slowed as the Fed stepped in with its aggressive interest rate hike policy to curb multi-year high inflation.
Higher interest rates directly impacted home sales as mortgage rates soared, compelling buyers to put a halt to their plans of purchasing new homes.
However, inflation has lately shown signs of easing and spending on residential projects has been picking up.
The Commerce Department said last month that new home sales jumped to a 13-month high in April. New home sales rose 4.1% to a seasonally adjusted annual rate of 683,000 units, the highest level since 2022.
New home sales serve as a leading indicator of the housing market because they are recorded at the time of contract signing. Economists had predicted new home sales to fall to a rate of 665,000. Year over year, new home sales increased 11.8% in April.
This came as separate data showed that permits for future single-family homes also rose in April, while confidence among homebuilders, which had hit rock bottom, rebounded to a 10-month high in May.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank that are poised to gain from the rise in spending on construction projects. We narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KB Home is a well-known homebuilder in the United States and one of the largest in the state. KBH’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.
KB Home’s expected earnings growth rate for next year is 7.1%. The Zacks Consensus Estimate for current-year earnings has improved 3.8% over the past 60 days. KBH presently carries a Zacks Rank #2.
Beazer Homes USA, Inc. designs, builds and sells single-family homes. BZH designs homes to appeal primarily to entry-level and first move-up home buyers. Beazer Homes’objective is to provide customers with homes that incorporate quality and value.
Beazer Homes’ expected earnings growth rate for next year is 7.6%. The Zacks Consensus Estimate for current-year earnings has improved 11% over the past 60 days. BZH presently has a Zacks Rank #1.
D.R. Horton, Inc. is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets. DHI’s operations are spread across 110 markets in 33 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States.
D.R. Horton’s expected earnings growth rate for next year is 6.4%. The Zacks Consensus Estimate for current-year earnings has improved 23.1% over the past 60 days. DHI presently has a Zacks Rank #1.
Meritage Homes Corporation is one of the leading designers and builders of single-family homes. The company primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States.
Meritage Homes’ expected earnings growth rate for next year is 7.7%. The Zacks Consensus Estimate for current-year earnings has improved 21% over the past 60 days. MTH presently has a Zacks Rank #1.
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KB Home (KBH) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
Meritage Homes Corporation (MTH) : Free Stock Analysis Report
Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report
