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5 Stocks to Buy as Home Sales Surge to 10-Year High in Q1

Zacks

Further evidence that the housing market has strengthened this year emerged on Monday following the release of home sales data for the first quarter. According to the National Association of Realtors, home sales touched their highest level in 10 years. This is a clear indication that an increase in prices and mortgage rates have failed to deter new buyers.

To add this fresh sign of optimism, homebuilders’ confidence increased in May. The level achieved this month was also the highest in a decade. This is why this is a good time as any to benefit from the housing sector’s growth by investing in stocks gaining from such trends.

Q1 Existing Home Sales Reach 10-Year Peak

During the first quarter, total existing home sales increased by 1.4% to a seasonally adjusted rate of 5.62 million. This annual pace is the highest recorded since the corresponding period in 2007, when the metric had touched 5.66 million.


Additionally, the figure was higher than the pace of 5.36 million recorded in the same period last year as well as the fourth quarter of last year. In the fourth quarter of 2016, the metric touched 5.36 million, which indicates a 5% improvement has now occurred.

Price Rise Raises Concerns, Homebuilder Sentiment Rises

The increase in home sales was accompanied by a significant rise in prices. The national median home price increased by 6.9% from the year-ago quarter to $232,100. This marks the highest gain in home prices in almost two years.

While a section of market watchers believe rising home prices and mortgage rates will deter new home buyers, others feel differently. Optimists have taken the view that millennials entering the housing market have been powering recent gains and will continue to do so.

Such sentiments have been borne out by the latest reading of the National Association of Home Builders/Wells Fargo Housing Market Index. This index of homebuilder sentiment increased from 68 in April to 70 in May. The index had hit 71 in March, the highest level witnessed since Jun 2005.

Our Choices

A record increase in home sales over the first quarter suggests that the housing sector is going from strength to strength. Such an improvement is likely to continue over the rest of the year and the fresh homebuilder sentiment reading stands testament to such a view.

Picking stocks which will gain from such trends looks like a smart option at this point. However, picking winning stocks may be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

Boise Cascade Company BCC operates as a wood products manufacturer and building materials distributor.

Boise Cascade has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 61.4% for the current year. Its earnings estimate for the current year has improved by 16.9% over the last 30 days. The stock has returned 30.6% over the last one year outperforming the Zacks Building Products – Wood Market sector, which has gained 15.5% over the same period.

TopBuild Corp. BLD installs and distributes building products, which consists of rain gutters, garage doors, fireplaces, shower enclosures, closet shelving and roofing.

TopBuild has a VGM Score of B. The company has expected earnings growth of 35.9% for the current year. Its earnings estimate for the current year has improved by 8% over the last 30 days. The stock has returned 50.3% over the last one year, outperforming the Zacks Building Products – Miscellaneous Market sector, which has gained 22.8% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Taylor Morrison Home Corporation TMHC is a homebuilder and land developer engaged in building single-family detached and attached homes for first-time buyers.

Taylor Morrison Home has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 11.8% for the current year. Its earnings estimate for the current year has improved by 1.9% over the last 60 days. The stock has returned 68% over the last one year, outperforming the Zacks Building Products – Home Builders Market sector, which has gained 26.2% over the same period.

Ply Gem Holdings, Inc. PGEM is engaged in manufacturing and selling exterior building products primarily in the United States and Canada.

Ply Gem Holdings has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 12.1% for the current year. Its earnings estimate for the current year has improved by 1.2% over the last 30 days. The stock has returned 23.6% over the last one year, outperforming the Zacks Building Products – Miscellaneous Market sector, which has gained 22.8% over the same period.

Bassett Furniture Industries, Inc. BSET is a leading manufacturer and marketer of high quality, mid-priced home furnishings.

Bassett Furniture Industries has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 0.3% for the current year. The stock has returned 9.6% over the last year, underperforming the Zacks Furniture Market sector, which has gained 14.9% over the same period. This provides a good opportunity to buy the stock given that there is significant upside potential.

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