Per the latest report from U.S. Commerce Department, domestic construction spending ticked up in May on the back of a sturdy increase in investments in private as well as public construction projects.
Although, the metric came in below market expectations, it showed a steep rise on a year-over-year basis. Such an increase points toward strength in the construction market despite trade war related woes. Investors should make the most of this opportunity and bet on stocks from the space.
U.S. Construction Activity Gains Traction
Construction spending in the United States ticked up 0.4% in May. This came in lower than the consensus estimate of an increase of 0.5%. However, the spending on construction projects across the United States increased 4.5% in May to an all-time high of $1.31 trillion.
However, the data for April was revised down to 0.9% instead of 1.8% reported earlier. This would have been the biggest increase in the last 24 years. Experts speculated that a downward revision in April data could lead to economists reducing their second quarter GDP growth forecast even further.
However, the Atlanta Federal Reserve stated on Jul 2 that it expects the U.S. economy to grow at an annualized pace of 3.8% in the second quarter compared with 2% in the first quarter.
Outlays on Private and Public Construction Drove Spending Higher
The uptick in May was supported by a steady increase in outlays on private as well as public construction projects. The total investment in private construction rose 0.3% last month. Further, investments in residential projects alone rose 0.87% in May.
Also, spending shot up 0.6% on new single-family homes and 1.6% on apartment construction. On the other hand, investment in public construction rose 0.7% in May to $304.1 billion — its highest level since October 2010. What contributed to such an increase was a 0.6% rise in state and local construction projects to $282.1 billion. This marked its biggest increase since 2009.
Moreover, outlays on state and local construction constitutes about 90% of the total government spending, thereby providing the biggest push to overall government spending. Taking such factors into consideration, a faction of economists believe that construction spending would end up propelling the overall economic growth of the United States this year even as interest rates remain high.
4 Best Choices
Despite the prevalent trade war-related worries, construction activity in the United States remained robust in May. Increased spending on public as well as private construction resulted in an uptick in overall construction spending.
The Zacks Construction sector is currently placed in the top 38% out of the 16 Zacks sectors. In this context, we have selected five stocks that are expected to gain from these factors. These five stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Jacobs Engineering Group Inc. JEC is a provider of engineering, architectural, designing and construction services.
The company is based out of Dallas, TX and has a Zacks Rank #1. The expected earnings growth rate for the current year is 31.52%. The Zacks Consensus Estimate for the current year has improved 6.2% over the last 60 days.
Boise Cascade Company BCC is a manufacturer and distributor of wood products and construction and building materials.
The company is based out of Boise, ID and has a Zacks Rank #1. The expected earnings growth rate for the current year is 74.70%. The Zacks Consensus Estimate for the current year has improved 20.6% over the last 60 days.
Norbord Inc. OSB is a producer of wood-based panels for industrial manufacturers, retail chains as well as contractor supply yards.
The company is based out of Toronto, Canada and has a Zacks Rank #2. The expected earnings growth rate for the current year is 6.35%. The Zacks Consensus Estimate for the current year has improved 6.2% over the last 60 days.
Sterling Construction Company, Inc. STRL is engaged in civil as well as residential construction across the United States.
The company is based out of The Woodlands, TX and has a Zacks Rank #2. The expected earnings growth rate for the current year is 70.91%. The Zacks Consensus Estimate for the current year has improved 3.3% over the past 60 days.
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