Yahoo Finance Construction Activity Rebounds: 4 Picks From Building Products
Construction spending and the purchase of building materials gained traction in November. The rise in spending on building products comes despite a sharp decline in overall retail sales.
One of the major reasons behind this jump may be easing inflation as commodity prices have been cooling over the past couple of months. Given this scenario, stocks like CRH plc CRH, Eagle Materials Inc. EXP, Dycom Industries, Inc. DY and Tecnoglass Inc. TGLS are likely to benefit in the near term.
Construction Activity Rebounding
The Commerce Department said on Jan 18 that retail sales declined 1.1% in December, higher than the consensus estimate of 0.8%. Sales fell across almost all categories. However, the bright spot in the report was that receipts at building material suppliers increased 0.3% in December, indicating that spending on building and construction activity is once again gaining traction.
The report comes just days after the U.S. Census Bureau said that spending on construction activity in the country rose 0.2% in November. The jump follows two months of consecutive declines.
Meanwhile, construction spending rose 8.5% year over year. Spending on private construction projects climbed 0.3% in November after declining 0.7% the month earlier. Private non-residential project spending increased 1.7%, particularly on gas and well drilling.
The housing market has been the biggest casualty of the aggressive interest rate hike policy adopted by the Fed to fight surging inflation. This has led to a decline in sales of single-family homes, resulting in lower spending on private residential construction projects.
However, higher interest rates have created demand for rental homes, which has resulted in higher spending on multi-family housing projects that increased 2.4% in November.
The present economic situation has majorly been responsible for the decline in spending on construction activity. High borrowing rates as a result of the Fed’s steep rate hikes have slowed demand.
This has been directly impacting the sales of building materials. However, prices have been cooling lately as data proves that inflation eased in the past couple of months.
According to data released last week by the Labor Department, the consumer price index in December fell to 6.5% from 7.1% in November.
This is the smallest increase in over a year. Inflation fell by 0.1% month over month in December after a 0.1% rise in November.
The Fed eventually decided to go slow on its aggressive rate hike stance by raising interest rates by 50 basis points in December after four consecutive interest rate increases of 75 basis points. This again suggests that inflation has finally started to cool off.
Slower interest rates are likely to help the construction sector rebound and simultaneously drive sales of building materials.
Our Choices
Given this scenario, it will be prudent to invest in building material and product stocks, with a favorable Zacks Rank, that are poised to gain from the rise in construction spending. We narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CRH plc manufactures cement, concrete products, aggregates, roofing, instulation and other building materials. Through its subsidiaries, CRH operates in Ireland, the United States, the United Kingdom, Spain, Germany and the Netherlands.
CRH plc’s expected earnings growth for the current year is 19%. The Zacks Consensus Estimate for current-year earnings has improved 13.5% over the past 60 days. CRH currently has a Zacks Rank #2.
Eagle Materials Inc. manufactures and distributes Cement, Concrete and Aggregates, Gypsum Wallboard, Recycled Paperboard, and Oil and Gas Proppants from more than 75 facilities across the United States. EXP manufactures and distributes concrete and aggregates products that are used in highway construction and maintenance and to construct residential and commercial buildings. Eagle Materials operates aggregates quarries and concrete plants in central Texas, northern California, Kansas and Missouri.
Eagle Materials’ expected earnings growth for the current year is 30.2%. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 90 days. EXP currently has a Zacks Rank #2.
Dycom Industries, Inc. is a specialty contracting firm operating in the telecom industry. DY provides diverse services such as engineering, construction, maintenance and installation services for cable and telephone companies. Dycom Industries provides specialty construction services to the following customers:
Dycom Industries’ expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days. DY presently has a Zacks Rank #2.
Tecnoglass Inc. is engaged in manufacturing and selling architectural glass and windows and aluminum products for the residential and commercial construction industries. TGLS operates primarily in North, Central and South America.
Tecnoglass’ expected earnings growth for the current year is 82.2%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. TGLS presently has a Zacks Rank #2.
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