Investing in Home Construction Stocks

According to J.P. Morgan, investors should focus on stocks that benefit from home construction rather than those tied to existing housing overhauls. In a recent report, home-building and building products analyst Michael Rehaut described it as "a tale of two end markets." Rehaut pointed out that new residential projects are rebounding while repair and remodeling activity has remained stagnant.

Indicators that traditionally predict repair and remodeling activity are signaling a slowdown. For example, sales of existing single-family homes, which are often an indicator of demand for renovations, have been declining for eight consecutive months. On the other hand, new single-family housing starts are averaging an annual rate of 1 million, which aligns closely with historical averages.

In response to these trends, Rehaut downgraded shares of tool maker Stanley Black & Decker to Sell from Hold. Conversely, he upgraded shares of TopBuild and Installed Building Products to Buy from Hold.

Rehaut's price target for Stanley stock remains unchanged at $89 a share. As of early trading, Stanley stock was up by 4.7% at $101.07. Meanwhile, the S&P 500 and Dow Jones Industrial Average were both experiencing gains of about 0.4%.

Rehaut's new price target for TopBuild is set at $387, up from $312 a share. Early Thursday, TopBuild stock was up by 8.1% at $359.47 a share. For Installed Building Products, his new price target is $199, up from $167. The shares saw a 7.1% increase, reaching $178.76.

Currently, less than 20% of analysts covering Stanley stock rate it as a Buy. In contrast, the average Buy-rating ratio for S&P 500 stocks is around 55%.

The average analyst price target for Stanley stock is approximately $95 a share.

TopBuild and Installed Building Products enjoy higher Buy-rating ratios of 67% and 50% respectively.

The average analyst price target for TopBuild stock is roughly $327, whereas the average for Installed Building Products stock is about $162.

Both targets are lower than current trading prices. These stocks have been outperforming market expectations, with TopBuild stock gaining around 113% year to date and Installed Building Products shares climbing about 95%.

Rehaut predicts that both of these stocks will continue to rise.