Building permits for privately owned homes in March were up 30% higher than they were a year ago. Housing starts were up 37% year over year.
But the reality is, there’s still room to grow. Housing starts are still comfortably below historic highs, which is a good thing. Because if you look at a chart of housing starts, when the highs hit, the market collapses.
That is risk in the housing business. There’s always a tendency to overbuild as the market corrects and then underbuild at the bottom, so there’s a history of boom and bust, or cyclicality, in the sector.
Much of that has to do with lending and interest rates. And the Federal Reserve just committed to continued near-zero rates and is pumping lots of money into the system. These seven homebuilding stocks ready for another round are a great way to play this rally.
- Lennar (NYSE:LEN)
- LGI Homes (NASDAQ:LGIH)
- MDC Holdings (NYSE:MDC)
- PulteGroup (NYSE:PHM)
- Meritage Homes (NYSE:MTH)
- Toll Brothers (NYSE:TOL)
- Tri Pointe Group (NYSE:TPH)
Homebuilding Stocks to Buy: Lennar (LEN)
In the business since 1954, LEN is now the largest home construction company in the U.S.
If you’re looking for homebuilder stocks to buy, going with the market leader is always a good strategy. Broadly diversified across nearly two dozen states, it can choose where to build to get the most out of the market.
LEN also builds multi-family homes (townhouses and apartment buildings), so it can also pivot to investment properties as well as single family homes to occupy.
Being the bellwether, it will also signal when the homebuilding wave has run its course, which is always good to know.
LEN stock is up 38.5% year to date, but still trades at a price-to-earnings ratio (P/E) of 10x. The stock has an ‘A’ rating in my Portfolio Grader.
LGI Homes (LGIH)
The Southwest region has been especially hot (pardon the pun) in the past couple of years as people and corporations have been moving to Texas from high-tax states like California.
Silicon Valley has become so expensive and crowded that Austin, Texas has become a big hub for venture capitalists and private equity firms. And with them, small tech firms have followed. That growth is continuing to drive population increases to the extent that the recent U.S. Census has added two more U.S. Representatives to Texas due to population growth.
LGIH is focused on the Southwest, and is based out of Texas. That makes it one of the top stocks in the sector to buy into, even after its nearly 60% run year to date.
Homebuilding Stocks to Buy: MDC Holdings (MDC)
Launched in 1972, MDC focuses on first-time homebuyers, which is a very good market now and makes the homebuilder one of the hot stocks to buy in this sector. With rents rising, homeownership becomes much more realistic with rates so low.
MDC operates out of nine high-growth states and regions around the nation, which is perfect for the demographic it serves. It also has a financing arm which helps get its single family detached homes and developments sold once built.
MDC stock is up 33% year to date and still sells at a P/E of 11x. The stock has a ‘B’ rating in my Portfolio Grader.
Named after Bill Pulte, who began building and selling homes in Bloomfield Hills, Michigan (a suburb of Detroit) at the ripe old age of 18 in 1950, PHM is now one of the top three homebuilders in the U.S., with a market cap of nearly $15 billion.
It currently operates in 67 markets in 29 states and D.C., expanding each reach as market demand grows beyond big city suburbs into second and third tier cities. This is the big transformation underway as people leave cities and crowded suburbs for more house for their money in cities that are more livable and more affordable.
Much of this shift has been brought about by the pandemic and new work from home set-ups. PHM is big enough to take advantage of this shift quickly.
Its ability to grow for nearly seven decades is proof its one of the top stocks to buy in this sector and can endure feast and famine. PHM stock is up 40% year to date, with a P/E that’s still under 11x.
PHM has a ‘B’ rating in my Portfolio Grader.
Homebuilding Stocks to Buy: Meritage Homes (MTH)
Launched in 1985 in Arizona, MTH is now in various key markets in eight other states from the Carolinas to California, mostly across the South and Southwest. It also builds active adult communities and tends to build for the mid- to upscale markets.
While its California properties and some of its other properties are feeders to prime markets, there are also plenty of fast-growing markets it’s involved in, like Nashville, Austin, Denver and Charlotte.
It has become one of the top stocks to buy recently because it’s a bit less well known than others, but it has a solid history and is making its mark with its focus on environmental, social and governance (ESG) investing. That’s a big and growing sector.
Up 27% year to date, MTH stock still has a P/E just below 10x. The stock has a ‘B’ rating in my Portfolio Grader.
Toll Brothers (TOL)
Founded in 1967 by a father and two sons who saw the potential building homes on a sizable scale, TOL is now the No. 5 builder in the U.S. and certainly has bragging rights to the highest average selling price — $849,000 with options upgrades of $183,000.
It’s an upscale homebuilder, which is a very good market to be in right now since many wealthy people are deploying their cash into real estate rather than having it sit around the bank earning little.
It’s now in 24 states nationwide, in the top markets in the best neighborhoods. It also builds multi-family dwellings as well as townhouses for buyers looking to minimize their footprints or buy rental investment properties.
Catering to the upscale market is never a bad idea since this sector usually is the last to change its buying habits when a downturn happens. And lower prices are even a better opportunity to upscale buyers that still want to buy.
Not surprisingly, this has been one of the top stocks to buy in 2021. It’s up 46% year to date, and trades at a P/E of 16x, which is higher than most of its peers, but significantly lower than the average growth stock in the markets.
TOL stock has a ‘B’ rating in my Portfolio Grader.
Homebuilding Stocks to Buy: Tri Pointe Group (TPH)
One of the newer builders on the list, TPH has acquired a number of builders since its inception in 2009 (it went public in 2013). It currently operates premium homes (attached and detached) and developments in 10 states and Washington, D.C., with 117 communities in those states.
Located in key strategic markets across the U.S. — Washington, California, Nevada, Arizona, Texas, Colorado, North Carolina, Maryland, DC and Virginia — it specializes in higher-end homes in established and expanding markets where people are moving from bigger cities or moving up from smaller properties. The average sale price of a TPH home is $634,000.
TPH also finances its properties, which also allows it to generate income off the backend of its home sales.
TPH stock is up 40% year to date, since this demographic is usually where the first stocks to buy appear, yet its current P/E still has yet to break 10x. The stock has a ‘B’ rating in my Portfolio Grader.
On the date of publication, Louis Navellier has positions in MDC, MTH, and TOL in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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