4 Stocks To Snap Up On March Tick-Up In Housing Starts

Housing starts and building permits made a comeback in March, after the respective drop of 7% and 5.7% in February 2017. However, homebuilder sentiment slid by a point for April from the previous month.

Per the latest jointly-released report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts increased 1.9% to 1.32 million units (seasonally adjusted annual rate) in March from the prior month. The figure also improved 10.3% on a year-over-year basis.

Moreover, residential building permits, an indicator of construction activity, increased 2.5% in March to an annualized rate of 1.35 million units from February.

Multifamily Starts & Permits Surge

The uptick in housing starts has been driven by a 16.1% spike in multifamily starts. The volatile trend in multifamily starts is well reflected in the 28% decline in February after a solid 23.7% rise in January. Also, multifamily permits rose 22.9% from the preceding month.

According to a study by FreddieMac, multifamily performance was mostly strong through 2017. FreddieMac expects the trend to continue through 2018 as completions peak and supply increases slightly faster than demand. Vacancy rates are expected to continue to scale higher at the national level and in most metropolitan areas but the majority will remain below the historical averages. Rents will continue to grow on a healthy labor market and lifestyle preferences, creating demand for multifamily units.

Availability & Affordability Hurt Single-Family Units

Single-family units, which are generally of higher importance and are indicative of a strengthening economy, have dropped in count. The 3.7% decline in housing starts was largely led by a shortage in housing lots — marking the steepest decline in seven years. The drop in supply is leading to higher home prices, giving rise to affordability issues.

Single-family home permits dropped 5.5% from the prior month, indicating a slowdown in single-family home construction activity.

Housing Industry’s Stance

Builders are concerned about elevated material costs due to the newly-imposed tariffs on aluminum and steel and limited land availability that are marring margins. Apart from this, there are concerns related to a series of interest rate hikes by the Federal Reserve. These factors are restricting homebuilders from responding to rising demand, pushing confidence down by a point to 69 in April.

The National Association of Home Builders or NAHB/Wells Fargo Housing Market Index (HMI) includes builder perceptions of current single-family home sales, sales expectations for the next six months and traffic of prospective buyers. The downside was a result of lower sales expectations, which dropped one point to 77. Traffic of prospective buyers were steady at 51, while the component gauging current sales conditions dropped two points to 75.

However, these factors haven’t had a marked impact on the industry's performance, which has been maintaining a leading position for quite some time. The Zacks Homebuilding Industry has rallied 17.4% in the past year, comparing favorably with 15.9% growth of the broader market (S&P 500). Moreover, a good industry rank (top 42% of more than 250 industries) instills investor confidence in this industry.

Solid economic growth and job market make us reasonably confident about the industry's performance. The economy experienced job additions at an average pace of 202,000 per month during the first quarter. This was significantly faster than the average gains registered over the last two years. Moreover, builders’ confidence level reading of 50 or above is considered strong enough.

“The modest decline in single-family starts in March is still in line with our solid builder confidence readings and is largely attributable to lingering winter weather that is causing production delays in certain areas of the country,” believes NAHB Chief Economist Robert Dietz. Also, he is optimistic about the gradual strengthening of the housing market in the coming months, given the ongoing job creation, wage increases and rising household formations.

Choosing the Right Stocks

Investors can bank on construction stocks, which are making the most of the positive housing momentum despite the adversities. We have chosen companies with the help of Zacks Stock Screener that flaunt a Zacks Rank #1 (Strong Buy) and 2 (Buy).

Lyon William Homes (NYSE:WLH) has a Zacks Rank #1. Shares of the company have gained 38.4% in a year’s time. Per the Zacks Consensus Estimate, EPS will grow 72.7% for the current quarter and 38% for 2018.

The company has been seeing upward estimate revisions — 10.5% for 2018 — in the last 60 days. This reflects analysts’ optimism over the stock’s prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade Company (NYSE:BCC) holds a Zacks Rank #2. Shares of the company have gained 44.5% in the past year. The company has been witnessing upward estimate revisions — 20.3% for 2018 — in the last 60 days. The Zacks Consensus Estimate calls for EPS growth of 73.1% for 2018.

Louisiana-Pacific Corporation (NYSE:LPX) holds a Zacks Rank #2. Shares of the company have gained 19.9% in the past year. The company is witnessing upward estimate revisions — 4.6% for 2018 — in the last 60 days. The Zacks Consensus Estimate projects EPS growth of 103% for the current quarter and 16.3% for 2018.

Patrick Industries, Inc. (NASDAQ:PATK) has a Zacks Rank #2. The stock has gained 44.5% in a year’s time. The company is witnessing upward estimate revisions — 3.9% for 2018 — in the last 60 days. The Zacks Consensus Estimate calls for EPS growth of 25.3% for the current quarter and 35.2% for 2018.

Can Hackers Put Money INTO Your Portfolio?

Earlier this year, credit bureau Equifax (NYSE:EFX) announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.

Zacks has Download the new report now>>just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.

Download the new report now>>