The real estate development companies have multi-faceted operations that range from acquisition, entitlement, development and sale of land/lots to renovation and re-lease of existing buildings. These land/lots are then sold to home-builders who build homes on them.

The steady recovery in the home-building/construction end market in 2015 and overall positive economic activity provided a strong operating backdrop for the real estate development business last year.

Generally, rising construction activity, steady job and wage growth, overall recovery in the economy and limited supply of inventory — finished lots and raw land — bode well for the real estate development industry in 2016.

While increasing demand is boosting sales, efforts to lower overhead costs, workforce reductions and the exit of non-core assets are improving profits for these real estate developers.

The Real Estate Development space currently has a Zacks Industry Rank of 36 out of more than 250 industries, suggesting it is better positioned than other sectors from this perspective.

3 Great Momentum Stocks

On this optimistic note, it will be prudent to invest in momentum stocks. A great way to narrow down such stocks is by looking at their short-term price activity as it reflects the current interest in a stock and the earnings momentum.

We have picked three Real Estate Development stocks using our Zacks style score system that promise momentum at the moment. These stocks not only have a Zacks Rank #1 (Strong Buy) or 2 (Buy) but also a momentum score of ‘A’ and ‘B.’ The stocks also rallied considerably in the past couple of months.

Forestar Group Inc. (FOR - Snapshot Report)

Austin, TX-based Forestar operates in the oil and gas and real estate sector in the U.S. Its real estate segment secures entitlements and develops infrastructure on its lands, primarily for single-family residential and mixed-use communities.

The Zacks Rank #1 stock has Momentum Style Score of A. The company has gained 40% since this February. The current year EPS estimate has moved up 29.2% over the past 30 days. 

Alexander & Baldwin, Inc. (ALEX -Snapshot Report)

The Honolulu, HI-based company is engaged in land stewardship, planning, entitlement, development and management of commercial properties, and real estate development primarily in Hawaii. It also engages in materials and construction and agribusiness in the region.

The Zacks Rank #1 stock has Momentum Style Score of A and gained almost 19% since the last month. The EPS estimate for the current year has been revised upward by 17.3% over the past 30 days

LGI Homes, Inc. (LGIH - Snapshot Report)

LGI Homes is engaged in the design and construction of entry-level homes across Texas, Arizona, Florida and Georgia. The Texas-based company acquires suitable finished lots and land parcels for development to support its home-building operations.

The stock has a Zacks Rank #1 and Momentum Style Score of A. The company gained 10% since Feb 2016. The EPS estimate for the current year has been revised 6.6% up over the past one month. 

Conclusion

With the construction sector expected to maintain its strong momentum in 2016, the real estate development industry should see another strong year. However, labor shortages, global economic weakness and uncertainty, restrictive mortgage lending standards, slight slowdown in sales in Texas/Houston and increasing competitive pressure will be the headwinds.