Construction spending touched a five-year high in April,
according to a report released by the government on Monday.
Additionally, March data was revised upwards. Taken together, these
reports suggest that the construction industry is making a strong
recovery following a slump during a long and harsh winter.
Construction Spending Rises
The US Census Bureau of the Department of Commerce reported
construction spending of $953.5 billion in April, up 0.2% from the
revised March estimate of $951.6 billion. Gains in government
construction and home building activity were the primary reasons
for this increase.
However, the increase in the payout by builders on residential and
nonresidential structures was less than the consensus estimate. But
the revision of the gains made in March from 0.2% to 0.6% was a
more significant development.
Gains in April mark the third consecutive increase for the industry
after a harsh winter led to a 0.4% decline in January. The slump in
construction spending weighed on the economy in the first quarter.
GDP contracted during this period, marking the first quarterly
decline in three years.
Home Sales Increase
A series of housing sales reports released last month also supports
the view that the housing sector is picking up steam. Existing home
sales data increased 1.3% to a seasonally adjusted annual rate of
4.65 million in April from 4.59 million in March. Existing home
sales rose for the first time this year at the fastest pace since
Sales of new single-family houses increased 6.4% from March's
revised rate of 407,000 to seasonally adjusted annual rate of
433,000 in April. The rise was larger than the consensus estimate,
which predicted sales would increase to 422,000. The Pending Home
Sales Index, a forward looking indicator based on contract
signings, moved up 0.4% to 97.8 in April.
Privately owned housing units authorized by building permits surged
8.0% to a seasonally adjusted annual rate of 1,080,000 in April
from March's revised figure of 1,000,000. Separately, single family
housing starts in April increased 0.8% above March's revised figure
Below we present three stocks poised to benefit from the increase
in construction spending, each of which also has a good Zacks Rank.
The first of these is a property management company while the
second is directly involved in construction activity. The third
company is a homebuilder.
CBRE Group, Inc.
) is a commercial real estate services and investment firm,
offering a wide range of services to tenants, owners, lenders and
investors in office, retail, industrial, multi-family and other
types of commercial real estates across the globe. Revenues are
generated by the company from management fees on a contractual and
per-project basis, as well as from commissions on transactions.
CBRE holds a Zacks Rank #2 (Buy) and expects earnings growth of
12.10%. The forward price-to-earnings ratio (P/E) for the current
financial year (F1) is 18.81.
Emcor Group, Inc.
) is a leading construction and manufacturing company specializing
in electrical facilities, energy infrastructure along with
designing and manufacturing life saving facilities. The company's
core area of expertise is planning and installing critical
infrastructure systems by providing high quality commercial
services aimed to extend the life of new and existing structures.
Currently, the company holds a Zacks Rank #2 (Buy) and expects
earnings growth of 19.1%. It has a P/E (F1) of 17.12.
Our third choice is
Toll Brothers Inc.
). The company builds luxury single-family detached and attached
home communities; master planned luxury residential resort-style
golf communities; and urban low, mid, and high-rise communities
principally on the land it develops and improves. The company also
caters to 50+ year old, active adult buyers, second homebuyers and
move up home buyers.
Apart from a Zacks Rank #3 (Hold), Toll Brothers Inc. expects
earnings growth of 68.9%. It has a P/E (F1) of 21.44.
Rising temperatures have given a welcome boost to construction
spending. Additionally, data released recently suggests that
this trend is expected to continue going forward. This is why these
stocks would make good additions to your portfolio.
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CBRE GROUP INC (CBG): Free Stock Analysis
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