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4 Stocks to Buy While the Construction Sector Rallies Higher

An improved sector rating makes these stocks attractive

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The construction sector has been witnessing good tidings of late. Positives like an improving economy, modest wage growth, low unemployment levels, positive consumer confidence and a tight supply situation raise optimism over the sector’s performance.

The positive momentum that the construction sector has been experiencing is evident from the improvement in its Zacks sector rank. The Zacks construction sector rank jumped from 12 to 4 (out of 16 sectors) last week, reflecting four positive revisions versus one negative.

A sector with a larger percentage of Zacks Rank #1 (Strong Buy) and 2 (Buy) stocks will have a better average than the rest.

The Zacks construction sector registered EPS growth of 26.25% on a year-over-year basis, highest among the 16 sectors. It has advanced 6.3% so far this year, comparing favorably with 5.2% growth of the broader market (S&P 500), as you can see below. The sector also outperformed the broader market in the last one year as well.

Several recent statistics released regarding the construction sector raise optimism. Construction spending inched up 0.8% on a monthly basis to $1,192.8 billion in February, at a seasonally adjusted rate. It also increased 3% on a year-over-year basis. Further, private and public sector construction expenditure increased a respective 0.8% and 0.6% on a monthly basis in February.

Also, housing/homebuilding industry in the sector has been riding high on solid new home sales data, affordable interest/mortgage rates and impressive housing starts figure. Resilient job growth and a healthy demand-supply balance along with seemingly high homebuilders’ confidence are adding to the momentum. Meanwhile, the rise in mortgage rates seems to be having a minimal effect on the industry.

As reported by the National Association of Realtors (“NAR”), sales of existing homes increased 5.4% from the year-ago figure in February. Contracts to buy previously owned U.S. homes jumped in February to the highest level in nearly a year and second-highest level in over a decade. The Pending Home Sales Index, an indicator based on contract signings, jumped 5.5% in February from January, as per NAR.

Thus, it looks like a good time to add a few construction stocks and cash in on the positive momentum.

Our Key Picks

With the help of the Zacks Stock Screener, we have zeroed in on four construction stocks with a VGM Score of “A” or “B” and a Zacks Rank #1 or 2.

Our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or 2 offer the best upside potential…

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