The U.S. housing market has boomed over the past two years, thanks to ultra-low interest rates and increasing demand amid a remote working environment. Home prices rose 16.9% in 2021 and are expected to rise again this year. Home sales have…
increased 8.5% year-over-year to 6.12 million homes, the highest since 2006.
The growing economy, rising demand for housing, and income growth are the main factors that will keep sales levels high in 2022, despite climbing mortgage interest rates. Amid the sustained purchasing power of homebuyers, the median home sale price is projected to rise 2.9% in 2022. Given these factors, we think it is advisable to invest in the stocks of homebuilding companies NVR, Inc. (NVR – Get Rating) and Hovnanian Enterprises, Inc. (HOV – Get Rating), which could achieve robust growth.
However, restrained supply and Fed’s hawkish tilt are expected to adversely affect fundamentally weak homebuilding stocks D.R. Horton, Inc. (DHI – Get Rating) and Lennar Corporation (LEN – Get Rating). Thus, we think these stocks are best avoided now.
Stocks to Buy:
NVR, Inc. (NVR – Get Rating)
NVR operates as a homebuilder in the U.S. The Reston, Vs., company operates in two segments: Homebuilding; and Mortgage Banking. It builds, markets, and sells single-family detached homes, townhomes, and condominium buildings under NV Homes, Ryan Homes, and Heartland Homes brands. It also provides various mortgage-related services to its homebuilding customers and brokers.
Yesterday, NVR announced the repurchase of $500 million of its outstanding common stock. With this share repurchase program, NVR’s total outstanding shares are expected to fall, thereby boosting EPS and ROE.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, NVR’s homebuilding income increased 21.1% year-over-year to $392.01 million. Its income before taxes increased 10.8% year-over-year to $426.81 million. And the company’s net income grew 9.7% year-over-year to $334.58 million, while its earnings per share rose 15.8% year-over-year to $89.09.
The $2.31 billion consensus revenue estimate for its fiscal first quarter, ending March 2022, represents 17.8% year-over-year growth. And the $96.98 consensus EPS estimate for the current quarter indicates 53.4% year-over-year growth.
Shares of NVR have gained 10% in price over the past year and closed yesterday’s trading session at $5,113.01.
NVR’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a grade of B for Momentum, Sentiment, and Quality. It is ranked #5 of 24 stocks in the B-rated Homebuilders industry. Click here to see NVR ratings for Value, Growth, and Stability.
Hovnanian Enterprises, Inc. (HOV – Get Rating)
HOV designs, constructs, markets, and sells residential homes in the U.S. HOV operates in two segments: Homebuilding; and Financial Services. The Red Bank, N.J. company builds and sells single-family detached homes, attached townhomes, urban infill, and active lifestyle homes. The company’s homes are marketed and sold under the trade name K.
HOV’s total revenues increased…
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