Construction stocks have showed impressive gains today after Freddie/Fannie bailout announcement.

The construction sector showed gains of 3.15% with residential and commercial building group showed gains of 7.77%, followed by mobile and RV construction group gaining 5.01%. The construction section hit bottom in first week of July and the index has gained approx 15% since then.

FTN Midwest said they remain bullish on the housing market and said the GSE bailout will be a positive for mortgage rate spreads. The firm reiterates their Buy ratings on housing and construction stocks RYL, DHI, CTX, TOL, PHM, and LEN.

Pali Capital upgraded DHI, LEN, and TOL as they believe the government actions related to FNM and FRE removes significant uncertainty surrounding the housing market.

In the residential and commercial building group, Meritage Corporation (NYSE:MTH) is the top gainer with gains of 18.06%, followed by Beazer Homes USA, Inc. (NYSE:BZH) gaining 13.34%, D.R. Horton, Inc. (NYSE:DHI) gaining 12.16%, Pulte Homes, Inc. (NYSE:PHM) gaining 11.25%, Ryland Group, Inc (NYSE:RYL) gaining 10.69%, Centex Corporation (NYSE:CTX) gaining 10.26%, Lennar Corporation (NYSE:LEN) gaining 10.25%, and HOVNANIAN ENTERPRISES INC (NYSE:HOV) gaining 10.17%

Notable Stocks in Construction

Pulte Homes is the highest ranked stock in the construction group at iStockAnalyst. The stock has gained 40.23% this year and 57.58% as compare to S&P 500. The analysts are mostly bullish on this stock with four analysts rating it at 'Hold' and three at 'Strong Buy'. Analyst are still expecting construction stocks to post negative earnings with Pulte Homes to post ($0.51) for next quarter and ($4.59) for the year.
For the longer term view analysts are expecting Pulte Homes to post significant upside starting from as early as later part of 2009. Citigroup recently initiated coverage on the stock with a buy rating.


Centex Corporation is second highest ranked stock in the group followed by Pulte Homes. Centex has not shown impressive growth like Pulte Homes. The stock is still down for the year but the stock is gaining grounds after hitting bottom in July. Analysts are still optimistic for the stock with two analysts rating this stock at 'Neutral' and one at 'Strong Buy'.

A luxury home builder Toll Brothers Inc. is other stock to watch. The stock has gained almost forty percent in the last couple of months. Couple of analyst recently cut the stock rating. On friday, Buck Horne of Raymond James cuts Toll Brothers from outperform to market perform on Friday. He said Toll Brothers (TOL) shares have rallied over the past seven weeks and trade at a premium to its peer group average, which at this stage of cycle, when fundamentals still deteriorating, adequately reflects the company's strategic advantages and may be prematurely discounting that a housing recovery is imminent.

After Toll Brothers reported EPS for its Q3 that exceeded the consensus estimate, JMP Securities thinks the stock's valuation is attractive for long-term investors, but the firm thinks it is still too early to recommend buying the shares in the short-term in light of the deteriorating housing market.

The stock is currently rated as avoid by iStockAnalyst computerized scan.