The latest results from the U.S. Census Bureau shows that residential construction is finally on the mend after a prolonged lull — let’s see if the publicly traded homebuilders could see their stocks jump as a result of the jump in construction.
The data
The first question becomes, is construction actually on the mend? When we check the data for three key areas — housing starts, construction employment, and the total number of homes under construction — we see:
| Housing Starts | Construction Employment | Units Under Construction | |
|---|---|---|---|
| Maximum | 139% | 114% | 144% |
| Minimum | 29% | 80% | 42% |
| July 2013 | 55% | 86% | 64% |
| Maximum Date | January 2006 | April 2006 | January 2006 |
| Minimum Date | April 2009 | January 2011 | August 2011 |
Source: St. Louis Federal Reserve.
Although we are certainly well below the peaks we saw in 2006, all of those data points have rebounded significantly from the lows seen during the great recession. In all of this, it also must be noted that we are unlikely to see the incredible run seen in the early part of the 2000s, as the percentage of Americans owning homes has fallen from 69% in 2005 to 65% in 2012 as the overall demand for housing has waned.
While we can see that housing is beginning to mend — the question becomes: Will that tell us if that will be a boon to home builders and their investors?
The stocks
When we look at the stock performance of four of the largest public homebuilders over the last 20 years we see they have all performed well when compared to the S&P 500 even after accounting for their tremendous falls in from 2005 to 2010:
Total return 1/1/1993-9/17/2013
| Toll Brothers Inc (NYSE:TOL) | 863% |
| Lennar Corporation (NYSE:LEN) | 1160% |
| PulteGroup, Inc. (NYSE:PHM) | 500% |
| D.R. Horton, Inc. (NYSE:DHI) | 1720% |
Yet interestingly, if we give equal weight to the three home construction metrics noted above and create an “index” using the Census data and then chart that performance we see something very interesting:
As you can see in the chart above, there is a strong correlation between the performance of the home builders and the trends seen in the housing data provided by the Census Bureau. While we know correlation doesn’t prove causation, and “technical” investing is often a losing endeavor, anyone considering an investment in any of these three should be encouraged by the rebound in housing data.
Further research must be done on all four of these companies to see if they are worthy of your dollars for investment — but if the housing data continues to trend upwards, we will likely see revenue growth ahead for these four stocks.
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The article 4 Stocks Set to Benefit From the Rebound in Construction originally appeared on Fool.com.
Fool contributor Patrick Morris has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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