U.S. Markets closed

5 Best Stocks in the Hot Homebuilding ETF

Sweta Killa

Showing a strong rebound, U.S. homebuilding has been the hottest of all the segments in 2019. This is especially true as the dual tailwinds of lower mortgage rates and slower home price growth are driving homebuilders higher. However, higher development costs are dampening robust construction growth (read: After a Stellar 2019, Housing ETFs Set for a Sturdy 2020).

The Fed’s easy monetary policy stance has pushed mortgage rates down, encouraging people to buy more homes and made refinance cheaper. Meanwhile, home prices have been rising at a slower pace. Further, homebuilder confidence has jumped to the highest level in 20 years.

Further, solid economic fundamentals have been fueling growth in the sector. For instance, job additions have witnessed the fastest pace of growth this year; unemployment dropped to the lowest level since 1969, wages increased, housing affordability improved, homebuyer demand increased, refinancing boomed and consumer confidence increased. An increase in home completions and the stock of homes under construction has also helped to ease a supply squeeze that had plagued the housing market (read: 5 Sector ETFs to Win After Robust November Jobs Data).

Moreover, millennials (age from the mid-20s to the late-30s) are the emerging generation bolstering growth in the homebuying market. Per the National Association of Realtors' 2019 Home Buyers and Sellers Generational Trends Report, millennials represented the largest cohort of home buyers at 37% in 2018.

Given the optimistic scenario, homebuilder ETFs have been rallying this year with iShares U.S. Home Construction ETF ITB leading the way. The fund is up nearly 51% in the year-to-date timeframe. Let’s take a closer look at the fundamentals of ITB.

ITB in Focus

This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It holds 45 stocks in its basket with heavy concentration on the top two firms. Homebuilding and building products take the largest share at 65.1% and 13.9% of assets, respectively while home improvement retail and home furnishings take minor portion in the fund’s basket. The product has amassed $1.2 billion in its asset base and trades in solid volume of around 2.2 million shares a day. It charges investors 42 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (see: all the Materials ETFs here).

Though most of the stocks in the fund’s portfolio delivered strong returns, a few have more than doubled. Below we have highlighted the five best-performing stocks in the ETF with their respective positions in the fund’s basket:

Best-Performing Stocks of ITB

TopBuild Corp. BLD: The stock has skyrocketed nearly 134% in the year-to-date timeframe. It has seen solid earnings estimate revision of 21 cents for this year over the past three months with an expected earnings growth rate of 30.1%. BLD sports a Zacks Rank #1 (Strong Buy) and a top VGM Score of A. The stock occupies the tenth position in the fund’s portfolio, making up for 2.7% share. You can see the complete list of today’s Zacks #1 Rank stocks here.

Builders FirstSource Inc. BLDR: The stock has surged nearly 132% in the same timeframe. It has a Zacks Rank #2 (Buy) and a top VGM Score of A. It has seen positive earnings estimate revision of 16 cents for this year over the past three months and has an earnings growth rate of 5.8%. Builders FirstSource accounts for just 0.7% share in ITB.

Skyline Corporation SKY: The stock has soared more than 121% so far this year. It currently has a Zacks Rank #4 (Sell) and a VGM Score of B. The stock has witnessed negative earnings estimate revisions of a couple of cents in the past three months for this year and has an estimated earnings growth rate of 24%. It makes up for 1.2% of the total assets in ITB (read: Not Santa, Trade Will Rule This December: ETFs to Your Rescue).

Installed Building Products Inc. IBP: This stock ranks 25th in the fund’s basket with 1.1% allocation. It has also delivered robust returns of nearly 108% so far this year. It has seen positive earnings estimate revision of 15 cents for this year over the past three months and has an earnings growth rate of 21%. Installed Building Products has a Zacks Rank #1 and a top VGM Score of A.

M/I Homes Inc. MHO: This stock claim 0.9% of the assets. It has jumped more than 104% in the same timeframe and has seen solid earnings estimate revision of 62 cents for this year over the past 30 days. Its earnings are expected to grow 31.9% this year. M/I Homes has a Zacks Rank #1 and a VGM Score of C.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>