The rally in the construction sector through 2017 is not showing signs of fizzling out anytime soon given upbeat fundamentals and Trump’s long-awaited $1.5-trillion infrastructure plan. Precisely, the construction sector has been in the top spot since last week, suggesting strong momentum ahead.
Upbeat Housing & Massive Infrastructure Plan
Housing starts and building permits made an impressive comeback in January, after declining 8.2% and 0.1%, respectively, in December 2017 due to colder-than-normal weather conditions. Housing starts increased 9.7% in January 2018 from the prior month, marking the highest rise since October 2016.
The figure improved 7.3% on a year-over-year basis, courtesy of a 3.7% rise in single-family housing starts and 23.7% spike in multi-family starts.
Moreover, residential building permits, an indicator of upcoming construction activity, increased 7.4% in January to an annualized rate of 1.34 million units from last December. This marks the highest uptick in more than 10 years.
Adding to the bullishness, U.S. homebuilders’ confidence remains unchanged at 72 in February, making us reasonably certain about the positive momentum in the sector.
The U.S. economy is clearly on a solid footing buoyed by impressive labor market, unemployment near a 17-year low, rising wages and modest inflation that is driving purchasing power and economic growth. All these are raising optimism among Americans about the economy. Notably, the U.S. consumer confidence rose to 125.4 in January, hovering near a 17-year high.
President Trump’s plan to double economic growth through an ambitious stimulus program featuring tax cuts, deregulation and higher infrastructure spending seems to bode well for the construction sector.
Recently, President Trump unveiled a massive $1.5-trillion plan to modernize America’s infrastructure. The plan incorporates $200 billion in federal funding. This federal infrastructure spending will promote State, local and private investments and maximize the value of every taxpayer dollar. Thus, picking stocks gaining from the infrastructure drive seems prudent at the moment.
Top Sector Rank
The construction sector has a Zacks Rank of 1 at present (out of 16 sectors). The sector has gained 12.9% in the last six months, outperforming the S&P 500’s 10.9%, as you can see below. About 90% of the industries under the sector has a Zacks Rank in the top 44%, with many stocks seeing rank upgrades and positive earnings estimate revision.
How to Pick Winning Stocks?
Studies have divulged that an average stock in a strong industry within the top-ranked sector is likely to perform better than an exceptional stock within an industry that is out of favor with investors. Therefore, stocks from top-performing industries within the top-ranked sector will certainly help build a sturdy investment portfolio.
Investors should note that a top Zacks Industry Rank means that more stocks within that group are seeing upward earnings estimate revisions. Since an industry is a group of stocks in a similar business, this is the perfect way to size it up.
Currently, Zacks Homebuilding Industry and Zacks Wood Industry occupy the top 6% and 9%, respectively, within the construction sector. Hence, top-performing stocks from these industries will make valuable additions to any portfolio.
Here are six stocks sporting a Zacks Rank #1 (Strong Buy).
Century Communities, Inc (NYSE:CCS), a home building and construction company, operates in major metropolitan markets in Colorado, Texas, Houston, Utah, Atlanta and Nevada.
The Zacks Consensus Estimate for 2018 and 2019 earnings have moved north by 4.4% and 12.3%, respectively, over the last 30 days. Century Communities has a projected earnings growth rate of more than 33% for the current year.
M/I Homes Inc (NYSE:MHO), one of nation’s leading builders of single-family homes, has been witnessing upward estimate revisions — up 2.7% for 2018 and 2.3% for 2019 — in the last 30 days. The Zacks Consensus Estimate projects EPS growth of 45.5% for 2018 and 25.3% for 2019.
Boise Cascade Co (NYSE:BCC), a wood products manufacturer and building materials distributor, has an expected earnings growth rate of 15.4% for the current year. The Zacks Consensus Estimate for 2018 earnings has risen 7.2% over the last 30 days.
JELD-WEN Holding Inc (NYSE:JELD) manufactures doors and windows, primarily in North America, Europe and Australia. Earnings estimates moved 4.7% higher for 2018 over the last 60 days. The company has an expected earnings growth rate of 36.5% for 2018.
Louisiana-Pacific Corporation (NYSE:LPX) is a manufacturer of building products primarily for new home construction and outdoor structures. The company is witnessing upward estimate revisions — up 33.5% for 2018 in the last 30 days. The Zacks Consensus Estimate projects EPS growth of 11.2% for 2018.
Potlatch Corporation (NASDAQ:PCH) is an integrated forest products company with substantial timber resources. Earnings are expected to rise 25.9% in 2018. The stock has witnessed 9.2% upward revision in earnings estimates for 2018 over the last 30 days.
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