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HVAC Stocks to Buoy on Dovish Fed & Housing Market Strength

Manaswita Ghosh Dutta

The American housing market is anticipating growth thanks to the Fed’s three consecutive interest rate cuts this year. The low-interest rates prompted the mortgage rates to fall as well, thus opening a doorway for prospective homebuyers.    

Of course, this would mean that homebuilders aren’t the only gainers from this trend. A string of companies from various sectors such as heating, ventilation and air conditioning (HVAC) to interior design and furnishing are bound to get a boost from the housing market’s underlying strength. Here we will concentrate on HVAC stocks that investors could consider.

Fed Chief is Optimistic About the Economy

Federal Reserve Chairman Jerome Powell recently indicated that the low-interest-rate environment isn’t going to change anytime soon. The major reason behind Powell’s remarks is that annual inflation remains below the central bank’s target level of 2%.

Speaking at the Greater Providence (Rhode Island) Chamber of Commerce earlier this week, Powell said the three rate cuts earlier this year (current benchmark rates are in the range of 1.5%-1.75%) have led to more home purchases. These purchases have contributed to the American economy’s continuing expansion.

In fact, the U.S. economy is currently in its 11th year of expansion, the longest in history. Powell also said that the current monetary policy is apt as long as the current “generally good” conditions persevere.

Overall Housing Market Remains Strong

Although sales of new American single-family homes slumped in October unexpectedly, the housing market in general is doing well, thanks to lower mortgage rates. After all, new residential sales in September were revised higher to 738,000 units from the previously reported 701,000 units, which are, in fact, the highest since July 2007.

According to the U.S. Census Bureau and the Department of Housing and Urban Development on Nov 26, new residential sales shed 0.7% to a seasonally adjusted annual rate of 733,000 units in October, dragged back by lesser activities in the South and Northeast regions.

However, sales were still 31.6% above the October 2018 estimate of 557,000, which induces optimism for the American housing market.

The housing market has witnessed more activity in the last few months, owing to the central bank’s low benchmark rates. The easier monetary policy has been instrumental in pushing mortgage rates down from 2018’s multi-year highs.

HVAC Stocks in a Sweet Spot

Needless to say, in a low-mortgage scenario, homebuyers will be more inclined to purchase a new accommodation for themselves. So what comes after one buys a new property?

Apart from the endless list of renovations and maintenance work, consumers would definitely take a look at the heating, ventilation, and air conditioning systems in the new house. We have, thus, chosen three stocks from the HVAC sector. All of these stocks are poised for growth ahead.

Comfort Systems USA, Inc. FIX is a provider of mechanical installation, renovation, maintenance, replacement and repair services to the mechanical services industry. The Zacks Consensus Estimate for Comfort Systems USA’s current-year earnings has risen 7.4% over the past 30 days. Comfort Systems USA carries a Zacks Rank #1 (Strong Buy).

Comfort Systems USA’s stock has outperformed the Zacks Building Products - Air Conditioner and Heating Industry in the last six months (+4.2% vs +4.1%). You can see the complete list of today’s Zacks #1 Rank stocks here.

United Technologies Corporation UTX is a provider of technology products and services to building systems. The Zacks Consensus Estimate for United Technologies’ current-year earnings has risen 0.1% over the past 30 days. United Technologies carries a Zacks Rank #2 (Buy). United Technologies’ stock has outperformed the Zacks Diversified Operations Industry on a year-to-date basis (+39.1% vs +28.0%).

Ingersoll-Rand Plc IR is a designer, manufacturer, marketer and service-provider of industrial and commercial products. The Zacks Consensus Estimate for Ingersoll-Rand’s current-year earnings has risen 0.5% over the past 30 days. Ingersoll-Rand carries a Zacks Rank #3 (Hold). Ingersoll-Rand’s stock has outperformed the Zacks Manufacturing - General Industrial Industry on a year-to-date basis (+43.2% vs +32.8%).

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