This Top Construction Stock is a #1 (Strong Buy): Why It Should Be on Your Radar

Building a successful investment portfolio takes skill and hard work, no matter if you're a growth, value, income, or momentum-focused investor.

But how do you find the right combination of stocks? Funding your retirement, your kids' college tuition, or your short- and long-term savings goals certainly requires significant returns.

Enter the Zacks Rank.

What is the Zacks Rank?

A unique, proprietary stock-rating model, the Zacks Rank uses earnings estimate revisions, or changes to a company's earnings expectations, to help investors create a winning portfolio.

There are four main factors behind the Zacks Rank: Agreement, Magnitude, Upside, and Surprise.

Agreement is the extent to which all brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of analysts revising their estimates higher, the better chance the stock will outperform.

Magnitude is the size of the recent change in the consensus estimate for the current and next fiscal years.

Upside is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.

Surprise is made up of a company's last few quarters' earnings per share surprises; companies with a positive earnings surprise are more likely to beat expectations in the future.

Each factor is given a raw score, which is recalculated every night and compiled into the Zacks Rank. Utilizing this data, stocks are put into five different groups: Strong Buy, Buy, Hold, Sell, and Strong Sell.

The Power of Institutional Investors

The Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.

Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, investment banks, and hedge funds. Studies have shown that these investors can and do move the market due to the large amounts of money they invest with. Because of this, the market tends to move in the same direction as institutional investors.

In order to figure out the fair value of a company and its shares, these investors will build valuation models focused on earnings and earnings expectations. Because if you raise estimates for the bottom line, it creates a higher fair value for a company.

With these changes, institutional investors will act, usually buying stocks with rising estimates and selling those with falling estimates. An increase in earnings expectations can potentially lead to higher stock prices and bigger gains for the investor.

Because it can take a long time for an institutional investor to build a position -- sometimes weeks, if not months -- retail investors who get in at the first sign of upward revisions have a distinct advantage over these larger investors, and can benefit from the expected institutional buying that will follow.

Not only can the Zacks Rank help you take advantage of trends in earnings estimate revisions, but it can also provide a way to get into stocks that are highly sought after by professionals.

How to Invest with the Zacks Rank

The Zacks Rank is known for transforming investment portfolios. In fact, a portfolio of Zacks Rank #1 (Strong Buy) stocks has beaten the market in 26 of the last 32 years, with an average annual return of +25.41%.

Moreover, stocks with a new #1 (Strong Buy) ranking have some of the biggest profit potential, while those that fell to a #4 (Sell) or #5 (Strong Sell) have some of the worst.

Let's take a look at NVR (NVR), which was added to the Zacks Rank #1 list on April 9, 2024.

Incorporated on Mar 4, 1993, NVR, Inc. is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. To serve homebuilding customers, the company operates a mortgage banking and title services business. The company operates in two business segments:  Homebuilding and Mortgage Banking. The homebuilding (accounting for 98.4% of 2023 total revenues) division builds and sells homes under three brand names - Ryan Homes, NVHomes and Heartland Homes. The company currently operates in 36 metropolitan areas across 15 states and Washington, D.C. The two trade names - NVHomes and Heartland Homes are mainly for move-up and upscale buyers.

For fiscal 2024, two analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $26.05 to $497.80 per share. NVR boasts an average earnings surprise of 8.1%.

Analysts are expecting earnings to grow 7.4% for the current fiscal year, with revenue forecasted to rise 7.6%.

Even more impressive, NVR has gained in value over the past four weeks, up 3.2% compared to the S&P 500's gain of 1.7%.

Bottom Line

With a #1 (Strong Buy) ranking, positive trend in earnings estimate revisions, and strong market momentum, NVR should be on investors' shortlist.

If you want even more information on the Zacks Ranks, or one of our many other investing strategies, check out the Zacks Education home page.

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NVR, Inc. (NVR) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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