NVR - 3 Homebuilding Stocks To Profit From the Residential Surge
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The U.S. residential market is on the rise, despite the novel coronavirus pandemic. Mortgage applications are on the rise, and we are entering the busy spring buying season with a substantial upsurge in demand. So, homebuilding stocks are taking center stage.
Even in 2020, we saw homebuilding stocks do pretty well. The SPDR S&P Homebuilders ETF (NYSEARCA:XHB) and the iShares U.S. Home Construction ETF (BATS:ITB) both beat the S&P 500 by approximately 10 percentage points last year.
Also, considering a sizeable portion of the U.S. is now vaccinated, we can expect homebuilding stocks to have a pretty good year.
For all these reasons, let’s take a look at a few homebuilding stocks that are forecasted to rise substantially this year. They are:
Now, let’s dive in and take a closer look at each one.
Homebuilding Stocks to Buy: NVR (NVR)
NVR is primarily known for home construction. However, it also has a sizable mortgage banking and title services segment that contributes significantly to the bottom line. It operates in 33 metropolitan areas across 14 states, mainly on the United States East Coast.
The homebuilding company makes a variety of townhomes, apartment buildings, and single-family detached homes. However, it has had mixed results recently. But things are expected to perk up, with revenues expected to grow 25.2% and 34.3%, respectively, for fiscal 2021 and 2022, per Refinitiv data.
Overall, the homebuilder had a stressed 2020. Nevertheless, in its fourth-quarter and full-year quarterly results, there were a few bright spots for investors. In Q4, new orders jumped 25% to 5,485 units from 4,392 units in the year-ago period. Meanwhile, loan production grew 17% year-over-year. Net income and diluted earnings per share (EPS) both jumped by 19% compared to the year-ago figures.
Additionally, for fiscal 2020, revenues increased by 2% YOY and net income rose 3%. Diluted EPS for the year was $230.11, a 4% rise from $221.13 per diluted share in 2019.
So, considering the recovery, now is the right time to pick this one up in my eyes.
Tri Pointe Homes (TPH)
Like the previous entry on this list of homebuilding stocks, Tri Pointe is organized into two segments: homebuilding and financial services.
However, where these two are different is performance. TPH has been on a roll. In the last twelve quarters, CNBC data shows the company beat analyst expectations 11 times, which is very impressive.
It recently reported a net income figure of $115.1 million, or 92 cents per diluted share, compared to $118 million, or 85 cents per diluted share in the Q4 2019. This handily beating the Wall Street analyst estimate of 67 cents by 37.3%. Moreover, YOY order growth of 14% is also a testament to a robust housing market and the company’s own performance.
For a home builder, its gross margin of 23.2% and return on equity of 12.8% is pretty good. Also, EPS has grown at 10.3% and sales at 5.9% during the last five years.
Furthermore, TPH stock has outperformed the S&P 500 by about 50% and its sector by 20% in the past year. Despite the surge, shares are still trading at 10x, trailing price-earnings (P/E) ratio.
So, you have a stock with solid fundamentals, excellent prospects and is trading at reasonable multiples. What’s not to like?
Pool (POOL)
One of the major themes during this pandemic is the exodus from cities to the suburbs. As a result, we see an increase in sales for home improvement products and pickup trucks. One of the curveball ways that you can play this trend is by investing in POOL stock.
Just by the ticker, you can pretty much guess what the company does. POOL is a distributor of swimming pool supplies and equipment. No surprises for guessing it had an excellent year in 2020. In all four quarters, it beat analyst expectations handily.
The company reported EPS of $1.45 per share for Q4 compared to 44 cents for the same period in 2019. Net sales came in at $839.3 million in Q4 of 2020 compared to $582.2 million in the year-ago period, a 44% YOY increase.
Usually, the fourth quarter is when results struggle. However, due to stay-at-home trends, sales have remained strong. Sales should remain steady as homeowners look to snazz up their outdoor spaces.
Return on equity stands at an astounding 70%, and both EPS and the top-line has seen major growth in the last three years. So, even if you take the pandemic out of the equation, the company has been doing well for quite some time.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.
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