The housing market had its strongest showing in 15 years in 2021, amid record low inventory, robust demand, and sky-high home prices. Furthermore, according to the National Association of Realtors, median home prices are expected to increase 5.7% this year.

Despite rising input prices and an expected increase in mortgage rates, the housing market is expected to remain resilient due to the increased affordability of buyers amid a tight job market. Last month, the median list price of a home reached an all-time high. Also, 2022 is expected to have the highest sales level after 2021 in the last 15 years. Analysts expect home sales growth of 6.6% this year, supported primarily by millennials, who are likely to be prime first-time homebuyers in 2022.

Given this backdrop, we think investors should buy the dip in the stocks of fundamentally sound homebuilding companies NVR, Inc. (NVR - Get Rating) and Cavco Industries (CVCO - Get Rating).

NVR, Inc. (NVR - Get Rating)

NVR in Reston, Va., engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings. The company operates through four Homebuilding segments: Mid Atlantic; Northeast; Mid East; and Southeast. It also offers mortgage-related services to home building customers through its mortgage banking operations.

NVR’s revenue increased 17% year-over-year to $2.31 billion in the fiscal first quarter (ended March 31, 2022). Its net income grew 71% from its year-ago value to $426.10 million, while its operating income increased 98.8% year-over-year to $529.69 million over the period. The company’s EPS increased 84% from its year-ago value to $116.56.

Analysts expect NVR’s EPS and revenue to increase 53.5% and 15.9%, respectively, year-over-year to $126.56 and $2.58 billion in the fiscal second quarter (ending June 30, 2022).

Over the past month, the stock has declined 1.7% and 28.7% respectively, year-to-date to close the last trading day at $4,211.33.

NVR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. NVR also has a B grade for Growth, Sentiment, and Quality. The stock is ranked #3 of 24 stocks in the Homebuilders industry.

In addition to the POWR Ratings I have just highlighted, click here to see the NVR ratings for Value, Momentum, and Stability.

Cavco Industries, Inc. (CVCO - Get Rating)

CVCO in Phoenix, Ariz., designs, produces, and markets manufactured homes in the United States. The company operates in Factory-Built Housing and Financial Services segments. Its manufactured homes are sold under seven brands: Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle, and Destiny. It also sells its homes through a network of independent and company-owned retailers, planned community operators, and residential developers.

On Feb. 28, CVCO announced the acquisition of a 184,000 square-foot manufacturing facility in North Carolina, which should expand its affordable home production capabilities.

In the third quarter ended Jan. 1, 2022, CVCO’s net revenue increased 49.5% year-over-year to $431.71 million. Its income from operations rose 130.4% from its year-ago value to $54.89 million, while its net income grew 304.1% to $79.62 million. The company’s net income per share increased 304.2% from its year-ago value to $8.57.

The $4.81 consensus EPS estimate for its fiscal fourth quarter (ending March 31, 2022) represents a 77.6% improvement year-over-year. The $435.50 million consensus revenue estimate for the about-to-be-reported quarter indicates a 42.1% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

Shares of CVCO have gained 8.4% over the past year. However, it has slumped 3.7% over the past month and 28.9% year-to-date to close yesterday’s trading session at $225.73.

CVCO’s POWR Ratings reflect solid prospects. The stock has an overall B rating, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Sentiment and a B grade for Growth and Quality. Within the Homebuilders industry, it is ranked #6 of 24 stocks. To see the other ratings of CVCO for Value, Momentum, and Stability, click here.

NVR shares were trading at $4,031.34 per share on Tuesday morning, down $179.99 (-4.27%). Year-to-date, NVR has declined -31.77%, versus a -18.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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