Hedge Funds Are Piling Into These Construction Stocks

In William Lyon Homes (NYSE:WLH), there were 24 funds holding shares at the end of 2017, compared to 21 funds at the end of September and just 16 funds at the end of 2016. The stock of the residential construction company surged by 33% over the last 12 months as the company has been showing strong financial results with double-digit revenue growth. For the fourth quarter, William Lyon Homes (NYSE:WLH) posted revenue of $624.64 million, up by 32% on the year and almost $9.0 million above the consensus estimates. At the same time, the company’s EPS of $0.89 was higher than the expected $0.85. William Lyon Homes (NYSE:WLH)’s higher revenue came on the back of higher home sales revenue, which went up by 28% to $1.80 billion last year and the company also managed to increase its adjusted homebuilding gross margin by 30 basis points to 23.2%.

Emcor Group Inc (NYSE:EME) also saw 24 funds from our database long its stock at the end of 2017, this number growing by one fund over the quarter and by three funds over the year. Emcor Group Inc (NYSE:EME) is one of the top electrical and mechanical construction and facilities services companies in the US. The company provide design, integration, start-up, operation and maintenance services to various mechanical and electrical systems, such as electrical power transmission, voice and data communication, fire protection, plumbing, filtration, water and wastewater treatments, etc. Last month, Emcor Group Inc (NYSE:EME), a Fortune 500 company, posted record results for the fourth quarter and full year. Its fourth-quarter revenue of $2.0 billion, went up by 3% on the year and topped the estimates by $80 million, while EPS of $1.13 was $0.27 higher than expected. In addition, Emcor Group Inc (NYSE:EME) fourth-quarter full-year diluted EPS from continuous operations increased by 30.4% and 26.8% to $0.90 and $3.83, respectively. The company is expected to have a similarly strong performance this year, with 2018 revenue and EPS guidance in the ranges of $7.6 billion to $7.7 billion and $4.10 to $4.70, respectively. 

Quanta Services Inc (NYSE:PWR) is the third most popular construction stock among the funds in our database. Heading into 2017, there were 35 funds long the stock, up by two over the quarter. At the same time, Quanta Services Inc (NYSE:PWR) saw the number of bullish investors jump by 15 compared to the end of 2016, the highest increase among construction stocks. Quanta Services Inc (NYSE:PWR) is an engineering and construction company that provides contracting services to the electric power, oil and gas industries. The company generates the bulk of its revenue from the electric power infrastructure services, which include designing, installation and repair of power networks and renewable energy projects. The stock is down by 15% year-to-date, even though the company reported better-than-expected results for the fourth quarter and the management expressed optimism regarding future performance. In addition, earlier this year, Quanta Services Inc (NYSE:PWR) has acquired an electrical infrastructure services business and an education and training institution for the electric power industry called Northwest Lineman College. 

With 56 funds long its stock, Lennar Corporation (NYSE:LEN) is the second most-popular construction company among hedge funds by a wide margin. Moreover, the number of bullish investors went up by 12 over the q9uarter and by eight compared to a year earlier.  Lennar Corporation (NYSE:LEN)’s stock lost 9%, as it was hit by soft new home sales data and concerns over growing mortgage rates, which has climbed to 4.63%. In January, Lennar Corporation (NYSE:LEN) invested in Opendoor, a startup that aims to offer a “trade-in” service for houses. The idea is for buyers to offer their house as part of the payment for one of Opendoor’s houses. The company analyzes the offer using computer algorithms, buys the house, repairs it and puts it back on the market. This business model could make houses more liquid and allow people to move more frequently and, potentially, buy more expensive houses.

D. R. Horton Inc (NYSE:DHI) is at the top of the list, with 57 funds bullish on the company at the end of the last year, up by 12 funds compared to a quarter earlier and by 13 funds from the end of 2016. The increase in popularity came as D. R. Horton Inc (NYSE:DHI)’s shares surged by 85% last year, although they are down by 13% year-to-date on the back of similar concerns that affected Lennar Corporation (NYSE:LEN) and other peers. For the fiscal first quarter, in addition to reporting better-than-expected revenue of $3.33 billion and EPS of $0.49 in line with the consensus estimate, D. R. Horton Inc (NYSE:DHI) also disclosed a 16% increase in net sales orders to 10,753 homes and projected a higher pretax profit margin, now expected at 11.8% to 12%, vs the previous 11.5% to 11.7%. The company also expects closings between 50,500 homes and 52,500 homes this year. 

Disclosure: none