Construction Spending Marches Higher in November: 5 Top Picks
Spending on U.S. construction projects increased in November for the fifth month on the trot. Improvement in homebuilding and government projects has more than offset the weakness in nonresidential construction. On a year-over-year basis, all three sections — public, private residential and private nonresidential registered gains in the month.
Key Takeaways
Spending on construction projects in the United States rose 0.6% in November after inching up 0.1% in an upwardly revised October figure, according to a report released by the Commerce Department on Friday. Spending on public construction projects ticked up 0.9% in November from October, reflecting a 5.3% spike in power projects and 2.2% increase in spending on highway construction. Private construction spending was up 0.4% in the month from October outlays. Notably, spending on private non-residential structures, which includes manufacturing and power plants, dropped for the third straight month, dropping 1.2% to the lowest level since November 2018. Low spending on lodging construction and manufacturing was the culprit.
On a year-over-year basis, overall spending on construction projects in the nation advanced 4.1%, with notable growth of 12.4% in public and a 1.6% uptick in private outlays.
Homebuilding & Public Construction Raise Hope
The November uptick was mainly driven by a 1.9% jump in spending on private residential construction that more than offset the 1.2% plunge in spending on private non-residential construction. Lower mortgage rates and a healthy job market have been driving the U.S. housing sector.
As per the latest report from Mortgage buyer Freddie Mac, the average rate for a 30-year fixed-rate mortgage eased to 3.72% in the week ended Jan 2, 2020 from 3.74% in the prior week. The benchmark rate was nearly 80 basis points below the 4.51% a year ago.
As the U.S. economy is expected to maintain a moderate growth trajectory this year, employment and wage gains are likely to continue to fuel demand for housing. Fed’s dovish stance and favorable demographics are also expected to provide a major boost to demand for homes in the upcoming quarters.
The recent housing data also reveals encouraging market prospects. The recently released housing starts data for the month of November showed a 13.6% year-over-year jump. Building permits increased 1.4% to the rate of 1.482 million units in November, the highest level since May 2007. Moreover, a survey showed that homebuilder confidence in December jumped to the highest level since June 1999.
Meanwhile, public construction spending continued to rise. In the words of ABC Chief Economist Anirban Basu, “The low cost of capital associated with today’s environment also makes it advantageous for governments to float bonds to finance infrastructure, helping to propel rapid growth in highway and street construction, public safety, and a number of other public categories. The hope is that policymakers in Washington, D.C., will soon address the pending insolvency of the Highway Trust Fund, allowing for public construction momentum to persist.”
5 Suitable Investment Picks in the Sector
Using the Zacks Stock Screener, we have zeroed in on five lucrative investment options from the Zacks Construction sector that boast solid growth opportunities despite all the near-term uncertainties arising from the trade war between the United States and China, as well as slowing global growth.
These stocks either sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Further, to narrow down the list, we have selected stocks with a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Moreover, each of the five stocks has outperformed the S&P 500 and the construction sector in the past year.
Arcosa, Inc. ACA: This Dallas, TX-based manufacturer of infrastructure-related products and services currently sports a Zacks Rank #1 and VGM Score of A. Earnings for 2020 are expected to increase 14.5%.
Foundation Building Materials, Inc. FBM: Based in based in Tustin, CA, this company is a specialty distributor of wallboard and suspended ceiling systems primarily in the United States and Canada. It currently sports a Zacks Rank #1 and has a VGM Score of B. Earnings for 2020 are expected to increase 20.4%.
TopBuild Corp. BLD: Headquartered in Daytona Beach, FL, TopBuild Corp. is an installer and distributor of insulation and other building products to the U.S. construction industry. It currently carries a Zacks Rank #2 and has a VGM Score of A. Earnings for 2020 are expected to increase 15.7%.
D.R. Horton, Inc. DHI: Based in Texas, this one of the leading national homebuilders currently carries a Zacks Rank #2 and has a VGM Score of A. Earnings for fiscal 2020 are expected to increase 14%.
Installed Building Products, Inc. IBP: Headquartered in Columbus, OH, this company operates as a residential insulation installer in the United States. The stock carries a Zacks Rank #2 and has a VGM Score of A. Earnings for fiscal 2020 are expected to increase 14.5%.
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