Amid Destruction in Home Construction, 3 Stocks Stay Hot

Over the past 12 months, high mortgage rates, record home prices, and strained consumer confidence have combined to take a pretty good bite out of the housing sector. The iShares U.S. Home Construction ETF (NYSEMKT: ITB) has fallen about 17% over the past year, at a time when the S&P 500 has rallied to an all-time high and gained more than 15%.

Even though the Federal Reserve has cut its benchmark interest rate twice since September, and the 30-year mortgage rate is approaching a three-year low of 6%, the U.S. Home Construction ETF continues to struggle. It slid about 16% in the past two months while the S&P 500 gained about 5%.

30 Year Mortgage Rate data by YCharts.

The sour sentiment weighing down the sector has been broad-based. About 85% of the 47 stocks in the fund are in the red this year, including about 30 that are down 10% or more year to date. All the while, this sector fund's short interest ratio has risen to 19%.

Bucking the down trend

What is equally noteworthy is the fact that, amid this construction destruction, a handful of stocks have not only bucked the down trend but are delivering strong -- and in some cases record -- results, along with commensurate share price increases this year ranging from 30% to 40%.

Image source: Getty Images.

Leading the group of top-3 gainers with a 41% rally this year is Installed Building Products (NYSE: IBP). On Nov. 5, the Columbus, Ohio-based installer of insulation and building products delivered better-than-expected third-quarter results, including record revenue and net income.

These gains have been driven in part by $58 million of newly acquired revenue through September, and from the repurchase of $135 million of its own stock. Founded in 1977, IBP operates more than 250 locations with more than 10,000 employees, and has a market cap of $6.7 billion.

Thanks to a 50% jump from its 52-week low in April, the second spot goes to TopBuild (NYSE: BLD), with a 30% year-to-date gain. The Daytona Beach, Florida-based insulation and roofing installer is also actively growing its top line and footprint in the U.S. and Canada through acquisitions.

In its Q3 earnings report and conference call on Nov. 4, TopBuild's management said that it had added $1.2 billion of new revenue so far this year through acquisitions. As a result, the company raised its full-year sales and earnings guidance.

TopBuild has also spent heavily on buybacks. It repurchased $417 million of its shares this year, leaving it with $770 million authorized for additional purchases.

According to the company's latest press release, TopBuild CEO Robert Buck acknowledged that "weak consumer confidence and economic uncertainty are weighing on demand for residential new construction in the near term." But he has confidence in the company's long-term prospects, especially in the commercial and industrial side of the business.

A "fluid market"

The third home construction outperformance outlier honors go to Cavco Industries (NASDAQ: CVCO), a Phoenix-based maker of manufactured homes that's up 28% YTD as consumer demand for affordable housing remains strong.

In Cavco's second-quarter results, released Nov. 6, CEO Bill Boor said that the 60-year-old company saw "strong performance from all phases of our business-production, retail and our Financial Services," within what he called a "fluid market with continuing macroeconomic risks."

According to Koyfin data, Cavco has topped analysts' sales estimates in seven of the past eight quarters, and beaten GAAP earnings per share expectations four of the past five times. Thanks to its recent gains, Cavco's market cap is now $4.5 billion, although its stock has dipped about 5% from the all-time high it hit on Oct. 24.

While the broader U.S. home construction sector continues to feel the effects of high rates and stretched affordability, these three counter-cyclical outperformers stand as proof that not all construction-related companies are built the same. Service, affordability, and operational discipline can still prevail in an otherwise challenging environment.

Matthew Nesto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Installed Building Products and TopBuild. The Motley Fool has a disclosure policy.