Housing Starts Rebound Post Hurricanes: 4 Top Picks

Home building in the United States skyrocketed to a 12-month high in October, going by the Commerce Department data released on Nov 17. The feat was achieved after the effect of the two devastating hurricanes ebbed. Most of the gains came from the South and the Midwest. Texas and Florida, especially, reported gains, most of which were backed by repair and rebuilding in the hurricane-ravaged areas.

Moreover, the index of home builder sentiment touched an eight-month high in November. So we believe that there cannot be a better time to invest in home-building stocks.

Single-Family Home Building Hits a Decade High

As per the Commerce Department, building permits increased 5.9% to 1.3 million units in October. Moreover, housing starts jumped 13.7% to 1.3 million units last month — the highest level since Oct 2016. The consensus estimate for the period was 1.2 million units.

Housing starts rallied 17.2% in the South, reaching 621,000 units. Additionally, single-family construction soared 16.6% last month. This marked its highest level since 2007. Further, Midwest and Northeast reported a surge in residential construction in October. Also, single-family home-building, which constitutes the largest portion of the housing market, increased 5.3% to reach 877,000 units last month. An increase in housing starts marks the end of a streak of decline for three straight months.

The biggest challenge for the housing market is low supply. Factors like rising lumber and land costs as well as tight labor supply and shortage of land have been hurting inventory build-up. Limited listings and rising prices have also kept home buyers at bay with many postponing their search for the time being.

However, strong employment, income growth, growing interest from first-time homebuyers, and low inventory of new and existing homes are some of the factors that should sustain growth in housing demand.(Read More)

Home-Builders’ Confidence Hits 8-Month High

The index of home builder sentiment rose two points in November to 70 from the previous month. This followed a four-point rise in October. The index had dipped three points in September from August. However, the index remains at a strong level of 64 points as any reading above 50 is considered positive.

Of the index's three components, current sales conditions rose two points to 77. Buyer traffic increased two points to 50. This is the first time in six months that this component is in the positive territory. However, sales prediction over the next six months has dropped one point to 77.

The South is considered a hotbed of residential construction and housing activity. The recent string of hurricanes which pummeled the region led to a steep decline in construction activity in the United States. With conditions improving down south after the hurricane woes faded, home-building stocks have gained traction.

Top 5 Housing Stocks To Buy Now

There are ample reasons to be optimistic about the broader housing sector. Moreover, the hurricanes season is almost over. Therefore, adding some housing stocks to your portfolio would make be prudent at this point.

With the help of the Zacks Stock Screener, we have zeroed in on four stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and other relevant metrics. A favorable Zacks Rank indicates that these stocks have been witnessing positive estimate revisions, which generally translate into rapid price appreciation. The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

KB Home (NYSE:KBH) is a well-known homebuilder in the United States. It offers homes in development communities, at urban in-fill locations and as part of mixed-use projects.

Currently, KB Home has a Zacks Rank #1 and a VGM Score of B. Additionally, the company is expected to return 57.7% this year, higher than the Building Products - Home Builders industry’s estimated returns of 14.1%. Moreover, the Zacks Consensus Estimate for KB Home’s current-year earnings has increased 4.7% over the last 60 days.

Universal Forest Products (NASDAQ:UFPI) manufactures, treats and distributes lumber products for the manufactured housing, wholesale lumber and industrial markets.

Universal Forest has a Zacks Rank #1 and a VGM Score of B. Additionally, the company is expected to return 13.3% this year, higher than the Building Products - Wood industry’s estimated returns of 8.5%. The Zacks Consensus Estimate for Universal Forest Products’ current-year earnings has increased 6.9% over the last 60 days.

Owens Corning (NYSE:OC) manufactures composite and building materials systems. The company provides a range of products such as glass fiber used to reinforce composite materials for transportation, infrastructure, wind-energy and other markets, to insulation and roofing for residential, commercial and industrial applications.

For 2017, Owens Corning is expected to return 19.1%, higher than the Building Products - Miscellaneous industry’s 0.3% estimated returns. The Zacks Consensus Estimate for Owens Corning’s current-year earnings has increased 1.2% over the last 60 days. Owens Corning carries a Zacks Rank #2 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Norbord (NYSE:OSB) manufactures and distributes panelboards and related products that are utilized while constructing new homes or overhauling and repairing existing homes.

Presently, Norbord has a Zacks Rank #1 and a VGM Score of A. Additionally, the company is expected to return 122.9% this year, higher than the Building Products - Wood industry’s estimated 8.5% returns. Moreover, the Zacks Consensus Estimate for Norbord’s current-year earnings has increased 20.8% over the last 60 days.

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