In this article, we will take a look at the 10 best residential construction stocks to buy.
News from the US Residential Construction
On February 18, Reuters reported that the US homebuilder sentiment dropped to a five-month low in February. While new home construction is heavily dependent on imported materials such as lumber, there are concerns regarding tariffs on imports as well as higher mortgage rates further bringing housing costs higher. NAHB Chief Economist Robert Dietz reiterated the concerns, stating
“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs”
Sheryl Palmer, Taylor Morrison CEO, joined CNBC’s ‘Closing Bell Overtime’ to shed light on the housing market amidst weak builder confidence and slowing activity. According to her, the first-time buyer is still stretched. Regarding tariffs, she deemed the situation still uncertain but referred to them as something that will have an impact and will be ‘unfortunate’ since affordability is stretched and this certainly won’t help.
Previously, Ivy Zelman, Zelman and Associates Executive Vice President appeared on CNBC, saying the spring selling season is not yet a disaster but is off to a soft start. Alongside, the risk of inflation from tariffs and the deportation risk which is a concern for construction workers could put more inflation in labor is there. Simultaneously, builders do not have pricing power and hence, they are resorting to offering concessions.
Now that we have looked at the residential construction market, let’s move to the 10 best residential construction stocks to buy.
Aerial view of a real estate complex with several residential lots under construction.
Our Methodology
In order to compile a list of the 10 best residential construction stocks to buy, we first used a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best residential construction stocks to buy have been arranged in ascending order of their hedge fund holders, as of Q4 2024.
“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. Champion Homes, Inc. (NYSE:SKY)
Number of Hedge Fund Holders: 24
Champion Homes, Inc. (NYSE:SKY) serves as one of the largest modular homebuilders in North America. The company has over 70 years of experience in building manufactured housing. It has 48 manufacturing facilities throughout the United States and western Canada.
The business strategies of Champion Homes, Inc. (NYSE:SKY) are proving to sustain its market leadership position. Other than pursuing organic and acquisition strategies, the company is enhancing the customer’s digital experience by enabling them to design, shop, and price homes online. It is also investing in production automation technology to improve product yield and quality. Furthermore, the market demographic trends seem to align in the company’s favor since 60% of the US population cannot afford a traditional home. Millennials and baby boomers are the fastest-growing age segments while accounting for 70% of manufactured home sales.
For the third quarter of fiscal 2025, Champion Homes, Inc. (NYSE:SKY) saw its net sales rise 15.3% to $644.9 million and earnings per diluted share increase 30.9% to $1.06, compared to the third quarter of fiscal 2024. Due to increased demand across all sales channels, US homes sold rose 14.1% to 6,437. The homebuilder remains confident in its strategy of accelerating product innovation, investing in technology, and expanding its retail and digital presence.
9. Cavco Industries, Inc. (NASDAQ:CVCO)
Number of Hedge Fund Holders: 32
Cavco Industries, Inc. (NASDAQ:CVCO) is one of the largest producers of modular and manufactured homes in the United States. The company produces and designs factory-built housing products. Cavco operates in the segments, Factory-Built Housing and Financial Services.
Cavco Industries, Inc. (NASDAQ:CVCO) has built a decades-old legacy for itself and has been shaping the manufactured home industry as a leader in innovation and construction techniques. For six decades, it has been bringing high-quality, luxurious homes to buyers while acquiring the status of one of the largest producers of manufactured homes in the market while half a million American families have enjoyed a Cavco manufactured home. The company has some of the recognized brand names in the industry including Fleetwood Homes, Palm Harbor Homes, Nationwide Homes, Fairmont Homes, Friendship Homes, Chariot Eagle, and Destiny Homes.
For the third quarter of fiscal 2025, Cavco experienced its net revenue go up by 16.8% as compared to the prior year, driven by higher factory-built housing volume as well as a strong recovery in financial services. Within the factory-built housing segment, net revenue was up 17.3% year-over-year. Simultaneously, the financial services segment’s net revenue rose on higher insurance premiums.
8. Tri Pointe Homes, Inc. (NYSE:TPH)
Number of Hedge Fund Holders: 37
Tri Pointe Homes, Inc. (NYSE:TPH) is one of the largest public homebuilding companies in the US. The home builder has been engaging in the construction of premium homes and communities with deep ties to the communities it serves.
Tri Pointe Homes, Inc. (NYSE:TPH) is a recognized leader in innovative design, energy efficiency, customer experience, and environmentally friendly business practices. TPH serves as a growth company with national reach and local market expertise in addition to a seasoned leadership team known for operational excellence. In 2024, the homebuilder achieved different milestones such as delivering a record-high 6,460 new homes and a 40% rise in diluted earnings per share year-over-year, while closing the year with the strongest balance sheet and liquidity ever.
However, the homebuilder faces challenges from housing affordability and elevated mortgage rates which also resulted in softer seasonal sales in the last part of 2024. The stock was recently downgraded by RBC Capital from Outperform to Sector Perform, based on near-term market headwinds as well as higher promotional incentives and rising land costs pressuring the company’s gross margin. As of the recent fourth quarter 2024 earnings, the firm remained positive for the spring selling season as Tom Mitchell, the President and Chief Operating Officer, said:
‘We are confident that strong long-term fundamentals, including both favorable demographics and the ongoing supply and demand imbalance, position Tri Pointe Homes and our industry for ongoing success ‘
7. Meritage Homes Corporation (NYSE:MTH)
Number of Hedge Fund Holders: 39
Meritage Homes Corporation (NYSE:MTH) is another large American homebuilder. The home builder provides energy-efficient and affordable entry-level and first-move-up homes. It operates in multiple states including Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee.
Meritage has built its reputation for its quality construction, distinctive style, and customer experience during its 39 years in business. The homebuilder’s competitive advantage is its available supply of quick turning move-in ready homes. This focus on affordable move-in ready inventory enables it to accelerate its growth amid an underbuilt supply of homes.
Meritage Homes Corporation (NYSE:MTH) recorded its highest annual closing volume of 15,611 homes for the full year 2024 while accomplishing a company-high home closing revenue of $6.3 billion. The management believed the firm to be in a good position to grow its market share further and capture demand in the spring selling season, based on a restricted supply of homes at its price points, favorable demographics for its offerings, and stability in the job market.
6. PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Holders: 40
PulteGroup, Inc. (NYSE:PHM) is one of the largest homebuilders in the US with operations in over 40 major cities. It was founded in 1950 and has delivered almost 750,000 homes across the country. The homebuilder caters to first-time, move-up, and active-adult homebuyers through its brands Pulte, Centex, Del Webb, DiVosta, American West, and John Wieland Homes and Neighborhoods.
PulteGroup, Inc. (NYSE:PHM) boasts a strong operating platform that remains diversified enough across the major homebuying markets, giving it opportunities for growth. With a unique multi-branded approach to the market, the homebuilder has an unmatched ability to serve all buyer groups. As the nation’s third largest builder, Pulte continues to penetrate new markets while it favors from operating in an undersupplied market.
Pulte’s strong financial and operating performance enabled it to invest more than $13 billion into its business since 2015. Recently, the homebuilder closed a record-setting year as it reported its strong fourth quarter of 2024 results. The homebuilder posted nearly $18 billion in revenues and net income of $3.1 billion for the full year. Pulte deemed itself well-positioned for the upcoming spring selling season through its targeted sales incentives as well as faster construction cycle times resulting in a sales backlog and inventory in process.
5. Taylor Morrison Home Corporation (NYSE:TMHC)
Number of Hedge Fund Holders: 44
Taylor Morrison Home Corporation (NYSE:TMHC) is one of the leading American homebuilders which has operations across 20 markets in 12 states and caters to the needs of diverse consumers including first-time, move-up, and resort lifestyle homebuyers and renters. The company’s financial services segment offers mortgage financing, title services, and homeowners’ insurance.
The leading national land developer and homebuilder has a company legacy that dates back over 100 years. The home builder favors from an attractive national footprint spanning some of the highest-growth markets and prime locations across the US. This concentration in prime locations enhances its portfolio’s through-the-cycle resiliency. Alongside a leading national, regional, and local scale, the homebuilder continues to benefit from a diverse portfolio serving consumers across the homebuyer spectrum while its buyers tend to be well-qualified with financial flexibility.
Taylor Morrison Home Corporation (NYSE:TMHC) closed 2024 with a strong fourth quarter, with home closings revenue up 12% year-over-year and adjusted earnings per diluted share up nearly 30% year-over-year. Sheryl Palmer, Taylor Morrison CEO and Chairman, reiterated the firm’s progress in 2024 by stating:
“This quarter’s results capped off another milestone year for our organization, in which we met or exceeded each of the long-term goals we laid out in early 2024. This included 12% closings growth, which was well ahead of the 4% increase contemplated in our initial guidance heading into the year and our 10% average growth target.”
4. NVR, Inc. (NYSE:NVR)
Number of Hedge Fund Holders: 45
The American home builder NVR, Inc. (NYSE:NVR) is headquartered in Reston, Virginia. The company sells and constructs homes under three brand names including Ryan Homes, NVHomes, and Heartland Homes. The firm operates in two segments which include homebuilding and mortgage banking.
NVR, one of the largest homebuilders in the United States, builds homes in 36 metropolitan areas in sixteen states and Washington, D.C. Historically, the firm claims to be one of the market leaders in each of the markets where it constructs homes. Bretton Capital Management, an investment management company, stated the following about NVR in “Bretton Fund” fourth quarter 2024 investor letter:
“Thirty-year traditional mortgage rates were over 6% for all of 2024, the highest they have been since the 2008 financial crisis, a sharp change from 2021 when they were below 3% for part of the year. Existing house sales hit their lowest levels since 1995, and new housing starts were down 4% from 2023. Lean times for the real estate industry. NVR, Inc. (NYSE:NVR) seems to have not noticed these market trends. They sold 22,560 houses in 2024, 21,540 in low-interest-rate 2021, and 19,668 in pre-Covid 2019. They keep grinding away with their basic business model, and they keep driving their earnings and buying back stock. In 2019, NVR earned $221 per share; in 2024, selling only 15% more houses, they earned $507 per share. NVR stock gained 17% on the year.”
For its fourth quarter ended December 31, NVR, Inc. (NYSE:NVR) witnessed its net income climb 12% and diluted earnings per share rise 15% over the year. Consolidated revenues for the quarter increased 17% year-over-year. Homebuilding revenues increased by 16% from $2.39 billion in the fourth quarter of 2023 to $2.78 billion in the fourth quarter of 2024.
3. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 60
D.R. Horton, Inc. (NYSE:DHI) is a Fortune 500 company that engages in the construction and sale of high-quality homes. The company started off with its first home in 1978 in Fort Worth and has closed over 1,100,000 homes in its 46-year history. Other than homebuilding, the company offers services such as mortgage, title, and insurance. DHI operates in 126 markets in 36 states across the country.
D.R. Horton, Inc. (NYSE:DHI) has a clear dominance in the American homebuilding market as it has been the largest homebuilder by volume since 2002. The homebuilder’s market share shows its strength, with approximately one out of seven new single-family homes in the United States built by DHI. As of September 30, 2024, D.R. Horton is the largest builder in 5 of the top 7 US housing markets and in 61 of the 125 markets in which it operated.
DHI has demonstrated a track record of consistent financial performance. The recent first fiscal quarter of 2025 is evidence, as the homebuilder achieved or exceeded guidance across all metrics. DHI recorded a consolidated pre-tax income of $1.1 billion alongside a pre-tax profit margin of 14.6%. This made it return $1.2 billion to shareholders through share repurchases and dividends during the quarter. Demographics supporting housing demand remain strong and continue to benefit the homebuilder.
2. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 64
Toll Brothers, Inc. (NYSE:TOL) was founded in southeastern Pennsylvania in 1967 by the brothers Bob and Bruce. The firm expanded across the United States over the years and emerged as America’s luxury home builder. Currently, Toll Brothers operates in 24 states and more than 60 markets nationwide.
Toll Brothers, Inc. (NYSE:TOL) is in a good spot with its widespread national footprint positioning it for growth, featuring the widest offering of luxury homes, and catering to the most affluent customers in its industry. The Toll Brothers advantage setting the homebuilder apart comes from the prestigious and desirable locations it chooses to build in, the distinctive architecture of a Toll Brothers home, unrivaled choice, and exceptional customer service.
For FY 2025’s first quarter, Toll Brothers delivered 1,991 homes and generated home sales revenues of $1.84 billion. The homebuilder signed 2,307 net contracts in its first quarter, up 13% in units when compared to the prior year’s first quarter. Demand was robust in the firm’s North and Mid-Atlantic regions in the first quarter, from Boston to Atlanta, and Dallas, Houston, Denver, Boise, Las Vegas, and California. Regarding the spring selling season, the homebuilder witnessed mixed results, with healthy demand in many of its markets especially at the higher end, while affordability constraints and more inventories in some markets pressured sales at the lower end.
1. Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Holders: 70
Lennar Corporation (NYSE:LEN) is another major American homebuilder that constructs affordable, move-up, and active adult homes under the Lennar brand name. The company is also a developer of multifamily rental properties, a provider of title insurance and closing services as well as an originator of residential and commercial mortgage loans.
As one of the nation’s largest builders of quality homes, Lennar Corporation continues to expand its footprint into new markets. Recently, the homebuilder completed the acquisition of a residential homebuilder based in Arkansas, Rausch Coleman Homes. While pursuing its strategy of becoming a pure-play land-light manufacturer of homes, Lennar completed the spin-off of Millrose Properties which is involved in purchasing and developing residential land and selling finished homesites to the homebuilder.
With mortgage rates rising through the fourth quarter of 2024, the housing market and the quarter remained challenging for Lennar. The results ended up missing expectations with new orders falling ninety-five short of the nineteen thousand the firm expected, and the gross margin falling to 22.1%, short of the 22.5% it expected. The homebuilder continued to adjust sales price, incentives, and margin to activate sales and manage inventory levels amidst a low desire and ability to transact among the consumers. Inflation and higher interest rates have majorly restricted this ability.
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