We recently published a list of 10 Best Residential Construction Stocks to Buy. In this article, we are going to take a look at where Meritage Homes Corporation (NYSE:MTH) stands against other 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.
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).
An employee of the company pointing out the features of a house to a first-time homebuyer.
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.
Overall, MTH ranks 7th on our list of best residential construction stocks to buy. While we acknowledge the potential of MTH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than MTH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.