Home Builders' Confidence Highest Since 1999: 5 Picks

The housing space is poised to grow as indicated by an uptick in housing starts and building permits in November. Moreover, 20-year high home builders’ confidence shows that Americans are interested to buy homes supported by low mortgage rates.

Thus, we have selected five stocks that are poised to grow with the developments in the housing space.

Home Builders’ Confidence Soar

On Dec 16, the National Association of Home Builders reported that Home Builder’s confidence jumped to 76 in December, adding 5 points from the prior month. The index that stood at 56 last December now has the highest reading since June 1999.

November’s reading was revised to 71, showing an upward movement of 1 point. The three major components of builders’ confidence, current sales condition, sales expectations in the next six months and buyer traffic added 7, 1 and 4 points respectively.

NAHB chief economist Robert Dietz believes that the near-term positive market conditions, a nearly 50-year low unemployment rate and increased wage growth have pushed the confidence level higher. However, supply-side constraints like labor and land availability are “dampening more robust construction growth.”

Moreover, home builders’ confidence has grown on a monthly basis in the South, Midwest and West. The three regions have added confidence by 1, 5 and 3 points, respectively.

Housing Starts and Building Permits Rise in November

Further in Dec 17, the Commerce Department reported that housing starts increased 3.2% in November from October to a seasonally adjusted annual rate of 1.365 million.

Housing starts for single-family homes increased 2.3% and multifamily structures rose 2.4%. Along with that, October’s construction of new homes was revised to 1,323,000 from the previously reported 1,314,000.

Building permits for privately-owned houses surged to a more than 12-year high and came in at 1,482,000, adding 1.4% from the previous month’s 1,461,000. The consensus estimate for November was 1,418,000. The rise in permits was driven by 4.4% increase in authorizations for multifamily housing, which overshadowed the 0.8% rise in single-family permits.

The low mortgage rates influenced by the Federal Reserve’s three consecutive interest rate cuts this year has not only helped Americans facing affordability challenges, but also revived the interest of buying homes. Moreover, Fed’s decision of keeping interest rates unchanged through 2020 will also keep the cost of debt low, encouraging Americans to buy homes.

According to mortgage finance agency Freddie Mac, the 30-year fixed mortgage rate stands at 3.73% and is still below its peak of 4.94% in November 2018.

Grab These 5 Stocks now

With the developments in the housing space, we have shortlisted five stocks that include home builders, building products and home furnishing companies. These stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Meritage Homes Corporation MTH designs and builds single-family homes. The company’s expected earnings growth rate for the next quarter is 67.7% against the Zacks Building Products - Home Builders industry’s projected earnings decline of 9.5%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 4.4% over the past 60 days.

Meritage Homes has gained 66.9% so far this year, more than the Building Products - Home Buildersindustry’s rise of 48.1%.

M/I Homes, Inc. MHO is a builder of single-family homes, operating in Ohio, Indiana, Illinois, Minnesota, Maryland, Virginia, North Carolina, Florida, and Texas. The company’s expected earnings growth rate for the next quarter is 10.9%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 14.6% over the past 60 days. M/I Homes has gained 92.4% so far this year.

PulteGroup, Inc. PHM acquires and develops land primarily for residential purposes and constructs single-family detached, townhouses, condominiums, and duplexes. The company’s expected earnings growth rate for the next quarter is 8.5%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 3.8% over the past 60 days. PulteGroup has gained 50.7% so far this year.

Orion Energy Systems, Inc. OESX designs, develops and manufactures LED interior high bay lighting products. The company’s expected earnings growth rate for the next quarter is 100% compared with the Zacks Building Products - Lighting industry’s projected earnings growth of 19%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 12.5% over the past 60 days.

Orion Energy Systems has gained more than 100% so far this year, more than the Building Products - Lighting industry’s rise of 15.6%.

RH RH offers a range of furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings products. The company’s expected earnings growth rate for the current quarter is 35.4% compared with the Zacks Retail - Home Furnishings industry’s projected earnings growth of 1.5%. The Zacks Consensus Estimate for the company’s current-year earnings has advanced 7.1% over the past 60 days.

RH has gained 89.1% so far this year more than the Retail - Home Furnishings industry’s rise of 36.4%.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>

Click to get this free report Orion Energy Systems, Inc. (OESX) : Free Stock Analysis Report PulteGroup, Inc. (PHM) : Free Stock Analysis Report M/I Homes, Inc. (MHO) : Free Stock Analysis Report Meritage Homes Corporation (MTH) : Free Stock Analysis Report RH (RH) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research