Despite Rising Rates, 5 Top Homebuilders to Buy Could Have a Big 2017

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With the first interest rate increase in a year past us, most on Wall Street are expecting anywhere from four to five increases between now and 2019. While investors may think that could hurt the homebuilder stocks, one firm we cover is reasonably bullish on some of the top companies in the industry. With underwriting standards somewhat looser, and the 2015 reduction in FHA mortgage insurance premiums providing a tailwind, 2017 may prove to be a very good year for investors that own the homebuilders.

In a new research report, Wedbush analysts are reasonably positive on the segment and feel investors should focus on the more liquid companies. They said this in the report:

The primary catalysts of housing demand (jobs and consumer confidence) are trending positively. Competition from existing homes for sale has been slim in the Top 25 markets, and we do not see a catalyst to change that trend. Mortgage availability in spring 2017 should be better than in spring 2016 due to a relaxation of mortgage lending standards (lower minimum credit scores and exceptions to the 43% debt-to-income limits) by the Government sponsored entities mid-2016.

The firm has six companies rated Outperform, and here we focus on five of the best known.

Century Communities

This company is focused on building homes in some of the fastest growing markets in the country. Century Communities Inc. (NYSE: CCS) is involved in the development, design, construction, marketing and sale of single-family attached and detached homes, as well as acquisition, entitlement and development of land. The company sells homes through its sales representatives, as well as through independent real estate brokers.

Century Communities builds single-family homes, townhomes and flats that incorporate high-merit designs and proficient craftsmanship in the posh areas of Colorado, Georgia, Nevada, Texas and Utah. Further, it is the parent company of Jimmy Jacobs Homes and Grand View Builders.

The Wedbush price target for the stock is $30, and the Wall Street consensus target is at $25.50. The stock closed most recently at $21.30 a share.

D.R. Horton

This top company is one of the highest volume builders in the United States. D.R. Horton Inc. (NYSE: DHI) is the largest public builder by closings in the country, delivering roughly 37,000 homes in fiscal 2015. It is positioned in 78 metropolitan markets in six major regions and develops single-family homes for first-time and move-up buyers.

Approximately 75% of revenue is derived from the Southeast, South Central and West regions. The company also provides mortgage financing and title agency services to homebuyers. The Wedbush team likes the liquidity and size of a builder like D.R. Horton, as the company has a market capitalization of over $10 billion.

Shareholders are paid a 1.45% dividend. Wedbush has a $36 price target for the stock, and the consensus target is at $34.11. Its shares closed trading on Thursday at $27.53 apiece.