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Homebuilder Sentiment Hits New High: 5 Solid Stocks to Buy

Zacks.com logo Zacks.com 10/21/2020

Homebuilder sentiment hit a new high in October, signaling that the U.S. housing construction industry has remained unaffected despite the rampage created by the coronavirus pandemic. According to the National Association of Home Builders/Wells Fargo Housing Market Index, confidence in the homebuilding market set new records in October.

The coronavirus pandemic has battered the global economy and almost all industries have been deeply impacted. With millions losing jobs over the past few months, finance has been a major problem. This has directly hit the homebuilder market, which saw fewer Americans buying homes. However, things started changing gradually once the economy started opening, which saw more people flocking to buy a new home. Since then, the upbeat sentiment has continued in the homebuilding market.

Homebuilder Sentiment Hits New High

Homebuilder sentiment set a record high once again, rising to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October also mark the first two months when the index has stayed above 80. Anything above 50 is considered positive. In October 2019, the index was at 71.

No doubt, demand for new homes continues to rise as many had deferred their plans of buying when the pandemic broke. These people are now finally buying new homes. For the forthcoming six months, sales expectations for newly built homes rose to 88, jumping 3 points, while buyer traffic stayed unaltered at 74.

Supply Shortage & Other Factors Pushing Demand

Understandably, homebuilders are benefiting from the severe shortage of existing homes for sale, which has seen demand for homes growing further after restrictions were lifted in May.

Homebuilders had almost stopped production after the coronavirus outbreak pandemic and were caught off guard by the sudden consumer demand that hit their market in May. As a result, existing land pipelines were depleted at a faster pace than builders had expected.

Also, home-buying activity is getting a boost from record-low mortgage rates, which have dropped below 3% for a 30-year-fixed rate mortgage for the first time in almost 50 years. Thus, new home sales are likely to get a boost in the coming days also.

Our Choices

Homebuilder sentiment hitting a record high in October is an indication that buyers are showing interest with the U.S. economy gradually reopening and people going back to work. In this opportune time to invest in homebuilding, we suggest five stocks with a Zacks Rank #1 (Strong Buy) that are likely to gain ahead. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meritage Homes Corporation MTH primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active-adult buyers in the historically high-growth regions of the United States.

The company’s expected earnings growth rate for the current year is 50.2%. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the past 60 days. 

PulteGroup, Inc. PHM engages in homebuilding and financial services businesses, primarily in the United States. The company conducts operations through two primary business segments – Homebuilding and Financial Services.

The company’s expected earnings growth rate for the current year is 23.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. 

Beazer Homes USA, Inc. BZH designs, builds and sells single-family homes. The company designs homes to appeal primarily to entry-level and first move-up homebuyers. 

The company’s expected earnings growth rate for the current year is 20.5%. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the past 60 days.

Lennar Corporation LEN is engaged in homebuilding and financial services in the United States. The company’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.

The company’s expected earnings growth rate for the current year is 25.4%. The Zacks Consensus Estimate for current-year earnings has improved 12.3% over the past 60 days. 

Toll Brothers Inc. TOL builds single-family detached and attached home communities; master-planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves.

The company’s expected earnings growth rate for next year is 53.3%. The Zacks Consensus Estimate for current-year earnings has improved 9.7% over the past 60 days.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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