Since the beginning of 2019, one of the top-performing industries has been one many would not expect, homebuilders. After suffering during the recession and failing to return thereafter, builder stocks rose 50% last year as seen in the iShares U.S. Home Construction ETF (ITB). Even more, they've already risen double digits this year and economic data indicates they may have more gains ahead.
Most companies in the home construction industry trade at P/E multiples of 15X or less and have had steady earnings growth over the past few years. Indeed, the recession for homebuilders did not end in 2010 as it did for most industries, it lasted for nearly a decade.
Take a look at housing starts, permits, and existing home sales below:
As you can see, these data did not return to their midpoint level (which has been in place since the series began in the '70s) until 2017-2019 and are only recently crossing higher. You may note that housing starts are climbing incredibly fast, implying strong revenue growth for materials suppliers.
This brings me to the supplier Builders FirstSource (NYSE:BLDR). The company is the largest public supplier of structural building products and value-added components in the United States. They manufacture trusses, wall panels, stairs, doors, etc. and sell to contractors throughout most of the country.
BLDR more than doubled last year and has had strong, but volatile, performance over the past six years and the stock is finally returning to its all-time high:
The stock crossed above its 2006 peak at the onset of 2020 and has since retracted. While I usually do not like buying stocks after such a rally, BLDR's stock remains significantly undervalued. Even more, the price and economic momentum are driving it to continue to rise and I expect the company to make new all-time highs this year.
