5 Stocks To Buy On Resilient Housing Demand

Pending home sales increased in September, yet another indication that housing demand remains strong despite a widespread supply shortage. A strong labor market and friendly interest rates have been largely responsible for boosting the new homes market. However, construction companies have lagged demand, leading to shortage for prospective buyers.

Additionally, new home sales and existing home sales also increased over last month. As we head toward the end of the year, the market for single family housing looks promising. Picking up stocks set to gain from this trend could lead to handsome profits for you.

Home Sales Enjoy Healthy Growth

According to data released by the National Association of Realtors, a gauge of pending home sales increased last month, reversing a decline in August. The Pending Home Sales Index, which measures housing contract activity, gained 1.5% from August to 110.0 in September. According to market watchers, the tone of this release suggests that existing home sales will rise in the near future. Sales of existing homes rose 3.2% in September from August to a seasonally adjusted rate of 5.47 million.

Meanwhile, sales of newly built homes increased 3.1% in September from the prior month to a seasonally adjusted annual rate of 593,000, according to the Commerce Department. Sales in September were 29.8% higher compared to a year ago. A slew of factors including wage gains, increase in job additions, record low mortgage rates and positive demographics had a positive impact on gauges of home sales.

Housing Starts Dip Signal Supply Shortage

Housing starts fell 9% in September from August to a seasonally adjusted annual rate of 1,047,000, missing the consensus estimate of 1,172,000, reaching its lowest level in last one and a half year. This release underlines the supply shortage which is likely to result in higher home prices. However, building permits went up 6.3% from August to a seasonally adjusted annual rate of 1,225,000 last month. It was also higher than the consensus estimate of 1,160,000.

The increase in building permits, which is an indicator of future housing activity, implies that the supply shortage is likely to be corrected soon. Meanwhile, homebuilders continue to exude confidence. The National Association of Home Builders/Wells Fargo builder sentiment index has risen to 63 in October. Despite a marginal decline, the index remains at an encouraging level, signifying that homebuilders think sales conditions remain promising.

Our Choices

The bulk of the housing data released this month indicates that the housing market is in particularly good health. A variety of underlining factors are continuing to boost the confidence of homebuilders.

Adding stocks set to gain from this phenomenon looks like a good option at this stage. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style score will carry a different weight while arriving at a VGM score.

Louisiana-Pacific Corp. (NYSE:LPX) manufactures building materials and engineered wood products in the U.S., Canada, Chile and Brazil.

Louisiana-Pacific has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 15.1% over the last 30 days.

Norbord, Inc. (NYSE:OSB) is a producer of wood-based panels.

Norbord has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 4.5% over the last 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gibraltar Industries, Inc. (NASDAQ:ROCK) manufactures and distributes products to the industrial and buildings market.

Gibraltar Industries has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 45.9% for the current year. Its earnings estimate for the current year has improved by 9.5% over the last 30 days.

Trex Co. Inc. (NYSE:TREX) is a manufacturer of wood-alternative decking and railing.

Trex Co. has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 53.3% for the current year. Its earnings estimate for the current year has improved by 0.1% over the last 30 days.

Lennox International, Inc. (NYSE:LII) is a leading global provider of climate control solutions

Lennox International has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 33.9% for the current year. Its earnings estimate for the current year has improved by 1.6% over the last 30 days.

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