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The 3 Most Undervalued Homebuilder Stocks to Buy in September 2023

The housing market in the U.S. is in a difficult period right now. The average interest rate on a 30-year fixed-rate mortgage now stands at a whopping 7.27%!

Therefore, the number of applications for mortgages is at their lowest, according to data from the Mortgage Bankers Association. In particular, the resale market is in the doldrums as existing homeowners stay put. They would rather keep the lower fixed-rate mortgage they locked in years ago before interest rates started marching higher.

However, demand for houses remains. Many would-be homeowners are having to rely on new home construction to get into a place of their own. Therefore, the most recent stock buys of famed investor Warren Buffett were three of America’s largest homebuilders. Buffett is betting that homebuilders will benefit greatly as the housing resale market in the U.S. stagnates.

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It’s good news that many construction companies and homebuilders are benefitting from demand and increased sales growth right now. Let’s explore the three most undervalued homebuilder stocks to buy before month’s end.

Advanced Drainage Systems (WMS)

underground pipes being installed
underground pipes being installed

Source: Shutterstock

It’s not sexy, cool or cutting edge, but Advanced Drainage Systems (NYSE:WMS) is the kind of company that is absolutely necessary to the homebuilding industry.

Founded in 1966, Advanced Drainage makes the pipes, drainage systems, and other water management products that are needed to put sewage and public water systems into suburban home developments. While the company focuses primarily on the residential home market, it also manufactures pipes and other products for the non-residential and agriculture sectors.

Now is a great time to pick-up WMS stock with the share price down 10% over the last 12 months and sitting nearly 20% below the all-time high from August 2022. Trading at 20 times future earnings, and quarterly dividend offering of 14 cents a share, and a yield of 0.46% are additional reasons to like the stock.

Plus, while Advanced Drainage Systems’ stock has retreated over the last 12 months, the share price has increased nearly 280% over the past five years. Investment bank Baird raised its price target on WMS stock to $170 from $119 and maintained a “buy” equivalent rating on the shares.

Carlisle Companies (CSL)

stocks to buy: construction workers work on a concrete floor
stocks to buy: construction workers work on a concrete floor

Source: Shutterstock

Carlisle Companies (NYSE:CSL) is another homebuilder company whose stock has stumbled lately but that has a strong long-term track record.

Carlisle specializes in critically important home construction products including roofing products, foam insulations, and vapor barrier systems. Again, it’s not glamorous but it is absolutely necessary to build homes to code. Across the U.S., Carlisle’s stock has slumped over the last 12 months, declining 7%. But long-term, CSL stock has been a winner, having gained 118% over the last five years.

Carlisle companies is also raising its dividend, taking its quarterly payout up by more than 40% over the last year to 85 cents a share. The dividend now yields 1.22% and comes after a steady string of strong earnings from the company. Currently, the stock trades at 19 times future earnings estimates, which is reasonable.

The median price target on CSL stock is 17% higher than where the shares currently trade. Many analysts expect Carlisle Companies to benefit as the homebuilding industry moves to more efficient construction methods and materials.

Owens Corning (OC)

A shot of a single family home with a green lawn and trees in the background.
A shot of a single family home with a green lawn and trees in the background.

Source: Shutterstock

Now let’s look at a stock that has been on fire this year. Owens Corning (NYSE:OC) specializes in fiberglass insulation that is used in residential homes across the country. Driven by strong sales and growing demand, OC stock has increased 62% over the last 12 months, including a 59% gain this year.

Through five years, the company’s share price is up 130%. Yet despite the big rally, Owens Corning stock does not currently look overvalued. With a current market capitalization of $12 billion, Owens Corning’s stock is trading at only nine times future earnings estimates.

Furthermore, analysts generally feel that OC stock has more runway ahead of it. The median price target on the share price is 16% higher than current levels. Additionally, Owens Corning pays a healthy dividend of 52 cents a share, giving it a yield of 1.51%.

Analysts say Owens Corning is benefitting from expectations that the U.S. Federal Reserve is near the end of its interest rate increases. With pent-up housing demand growing in the U.S., the company has managed to improve its profit margins in recent quarters. As these factors continue to play out over the next 18 months, OC stock is well-positioned for continued growth.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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