One of the biggest stories so far in 2013 is the continued surge of the housing market. Prices, construction, and sales of homes are all doing quite well, suggesting to many that this important corner of the economy is back on track.
This is confirmed by recent Case-Shiller Home Price Index data for April, which further suggested bullishness in the housing market. Non-seasonally adjusted data for the 20 city index showed a 10.9% increase in home prices, compared to a prior reading of 9.3%, and a consensus forecast of 10.2%.
Additionally, the double digit increase is the first since before the bubble burst (the last was in May 2006), while the 1.1% monthly increase was the first such four month streak since 2005, according to Bloomberg. Clearly, housing still has plenty of room to run so investors may still have time to make a play on homebuilders for solid gains this summer.
Homebuilder stocks in focus
While there a number of companies that target homebuilders, one that has probably flown under your radar is Meritage Homes (MTH). This is a relatively small company—market cap under $2 billion—which is engaged in the designing and building of single-family homes. The main business of MTH is largely in the Southwest, and West, though it also has some reach in the South as well.
Given the company’s focus on single family homes, it is a prime target to benefit from the incredible run in the housing sector. Analysts have begun to take note of this trend too, boosting their earnings expectations for the company in the near term.
For current quarter estimates, we have seen six estimates move higher in the past two months, and only one fall in the same time period. Meanwhile, for the full year time frame, seven estimates have moved higher, while not a single estimate has gone lower for this time period.
If that wasn’t enough, you should also note that the magnitude of these revisions has also been pretty incredible. While the current and next quarter figures are nothing to write home about, the current year and full year estimates have gone up by double digits in the past two months alone.
Analysts are also currently looking for year-over-year growth in the current quarter of nearly 74% on the earnings front, and full year growth of a similar figure in 2013. Clearly, expectations are quite high, although it should be noted that the firm has crushed expectations pretty handily over the past year, so one could expect this trend to continue in the near term as well.
Thanks to the positive trends in the industry and the solid earnings estimate revision picture, MTH has earned itself a Zacks Rank #1 (Strong Buy). This suggests that the company will outperform its peers in the near term and be an excellent investment choice.
We have already seen this take place for much of 2013, as MTH has easily outperformed broad market indexes in the time frame. However, this could easily continue given the incredible growth that the company is expected to see, the boom in home prices, and general investor demand for all things housing, suggesting that this firm could still be a great pick as we head into the summer months.
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