Markets have risen sharply after the Fed decided to cut interest rates for the first time since 2020 on Wednesday.
Amid rate cuts, investors may be searching for specific areas of the economy that may benefit directly in regard to a lower inflationary environment. This makes it noteworthy that several construction sector stocks were added to the Zacks Rank #1 (Strong Buy) list this week.
From mortgage rates falling to their lowest level in over a year to the likelihood of a more favorable operating environment for borrowing costs and new investment projects, here are three of these highly-ranked construction stocks to consider.
Image Source: Reuters
Top Home Builder Stocks: CCS & MHO
With it likely that the average 30-year mortgage rate will continue to decline from a multi-year high of 7.08% in October, Century Communities CCS and MI Homes MHO are two of the top homebuilder stocks to consider.
Lower mortgage rates are obviously appealing to homebuyers with Century Communities and MI Homes’ Zacks Building Products-Home Builders Industry in the top 17% of over 250 Zacks industries.
Image Source: Federal Reserve Economic Data
Furthermore, post-pandemic demand for new homes remained resilient even as mortgage rates had hit their highest levels since 2002. Considering borrowing costs should become more favorable for consumers and homebuilders, it's very tempting to buy CCS and MHO.
To that point, both stocks are expected to post high double-digit EPS growth in fiscal 2024 while trading at less than 10X forward earnings. Notably, Century Communities earnings are expected to climb another 15% in FY25 to $10.72 per share while MI Homes’ EPS is projected to increase 5% next year to a whopping $20.76.
Image Source: Zacks Investment Research
LSI Industries (LYTS) Special Niche
Having a unique niche in the construction sector, LSI Industries LYTS stock is very enticing as a provider of high-quality lighting fixtures for various commercial markets.
Most intriguing is that LSI Industries’ Zacks Building Products-Lighting Industry is currently in the top 1% of all Zacks industries. Correlating with such, earnings estimate revisions are nicely up over the last 60 days with LSI Industries EPS expected to increase 6% this year and projected to soar another 34% in FY25 to $1.18 per share.
Image Source: Zacks Investment Research
Reassuringly, LSI Industries has reached or exceeded the Zacks EPS Consensus for 18 consecutive quarters. Better still. At $15 LYTS still trades at a reasonable 17.8X forward earnings multiple which is on par with its industry average and a pleasant discount to the S&P 500’s 23.7X.
Image Source: Zacks Investment Research
Bottom Line
Like LSI Industries, earnings estimate revisions for FY24 have trended higher for Century Communities and MI Homes stock. This trend should continue with rate cuts upon us, making now an ideal time to buy these highly-ranked construction stocks.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Century Communities, Inc. (CCS) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
LSI Industries Inc. (LYTS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
