10 Construction Stocks to Buy Now

In this article, we discuss the 10 construction stocks to buy now.

The construction industry in the United States saw a boom in 2021, and this trend doesn’t look like it’s going away in 2022. Stuck at home because of the pandemic lockdowns, more people turned into customers for companies making new homes and remodeling old ones. Demand for outdoor renovation increased as well, with social-distancing policies leading to the emergence of outdoor pools, patios, and barbecue areas, all of which require construction materials and equipment. The American Institutes of Architects’ Consensus Construction Forecast sees non-residential construction growing at a rate of 4.6% in 2022, while a forecast report from the Oxford Economics and ConstructConnect suggests the residential sector will grow 9% in the year.

Of the most unique and promising tailwinds for the construction industry in 2022 is the passage of President Joe Biden’s new infrastructure bill, signed into law in November 2021, and carrying a price tag of $1.2 trillion. This is part of America’s ambitious plan to bolster its infrastructures such as roads, bridges, rail networks, water systems, and airports, along with sizeable investments in green energy, broadband connectivity, and electric vehicles as well. This ‘once-in-a-generation’ investment in United States’ infrastructure will result in sustained growth and profitability for the construction sector. The $1.2 trillion cheques will be spent across 5 years and promises to create millions of well-paying jobs for the American economy. Some of the stocks that will directly get a lift from this government spending include Vulcan Materials Company (NYSE:VMC), Caterpillar Inc. (NYSE:CAT) and Builders FirstSource, Inc. (NYSE:BLDR), along with other construction stocks mentioned below.

With Wall Street’s bullish views on the construction sector in 2022, along with the US government’s spending poised to propel traditional infrastructure and construction stocks, let’s take a look at the top 10 construction stocks to buy now.

Photo by Scott Blake on Unsplash

Our Methodology

The following stocks have been selected on the basis of positive analyst ratings, growth potential, hedge fund sentiment, and market perception. We relied on Insider Monkey’s database of 867 elite hedge funds to derive the hedge fund sentiment used to rank these stocks in ascending order.

10 Construction Stocks to Buy Now

10. BlueLinx Holdings Inc. (NYSE:BXC)

Number of Hedge Fund Holders: 14

BlueLinx Holdings Inc. (NYSE:BXC) provides building products for commercial and residential projects in the United States, consisting primarily of metal, insulation, engineered wood and structural products. In the third quarter of 2021, 14 hedge funds held stakes in BlueLinx Holdings Inc. with a combined worth of $117.7 million. This is down from 15 hedge funds holding stakes worth $124.4 million in BlueLinx Holdings Inc. at the close of Q2 2021. Tontine Asset Management was the leading shareholder of BlueLinx Holdings Inc. in the fourth quarter of 2021, with approximately 341,000 worth $32.6 million.

In December, DA Davidson analyst Kurt Yinger initiated coverage of BlueLinx Holdings Inc. with a ‘Buy’ rating and $102 price target. The firm’s analyst sees the company benefitting from cyclical increases in new residential construction activity in the United States.  BlueLinx Holdings Inc.’s (NYSE:BXC) improvement in its balance sheet and the currently modest valuation also predict a healthy medium-to-long term future for the company.

As of February 13, BlueLinx Holdings Inc. shares have soared 84.64% in the last 12 months, and 33.86% in the last 6 months.

In December, Investment firm Voss Capital talked about BlueLinx Holdings Inc. in its Q3 2021 investor letter. Here’s what the fund said:

“We believe those calling for a peak in housing activity have grown too cautious too soon. Most of the bearish arguments we encounter appear more sentiment based, e.g., prices have come too far too fast. Setting aside this understandably inherent acrophobia-induced caution and focusing more squarely on empirical evidence, the supply/demand picture remains on solid footing thanks to continued record low housing inventory accompanying fresh 30-year lows in single family and multifamily vacancies.6 Furthermore, roughly 2 million more people will turn 35 years old annually over the next five years, as compared to the previous five years. Since 35 is the peak first time home buying age, we believe there will be sustained demand for years to come. Our long portfolio remains heavily geared to entry-level housing related companies, as well as those tied to home remodeling.

One of our preferred ways to express this bullish thematic view is through BlueLinx Holdings Inc. (BXC). We knew investors had been bracing for a profit collapse on the back of a fast 73% decline in lumber prices that occurred from May to September, but we had a differentiated view based on the company’s earnings mix that is skewed to Specialty products with less volatile pricing as opposed to purely commoditized framing lumber. The stock continues to be overly discounted based on apathy, ambiguity, and fear over the housing cycle. By our math, even in the unlikely event that BXC’s Structural Products segment produces $0.00 in gross profits over the next year (compared to $187.7M LTM) and their Specialty segment revenue declines 5-10% from here, the company still has sustainable earnings power in excess of $12 per share. At 10x earnings, a modest discount to the company’s long-term P/E ratio despite the balance sheet being deleveraged, the stock still has 63% upside. A more reasonable earnings power estimate is in the $16.50-$19.00 range, which puts the stock under 4x fully taxed net income. Unfortunately, the Board did not pull the trigger on any of their authorized share buyback last quarter before the stock rose 50% after earnings. If they sharpen their pencils anytime soon and buy stock back at this depressed valuation, the normalized EPS number should only move higher.”

Along with Vulcan Materials Company, Caterpillar Inc. and Builders FirstSource, Inc., BlueLinx Holdings Inc. is a top construction stock to buy in 2022.

9. NVR, Inc. (NYSE:NVR)

Number of Hedge Fund Holders: 32

NVR, Inc. (NYSE:NVR) offers homebuilding services to consumers in the United States, along with mortgage banking services. It sells single-family detached homes, townhomes and condominium buildings through its trade names: Ryan Homes, NVHomes, Fox Ridge Homes and Heartland Homes. Investors were quick to realize the upward potential of NVR, Inc., with 32 hedge funds holding shares at the firm at the close of the third quarter, with a combined value of $480 million. This is up from 28 hedge funds with positions in NVR, Inc. in Q2 2021.

On February 8, analyst Kenneth Zener of research firm KeyBanc maintained an ‘Overweight’ rating on NVR, Inc. shares, and raised the price target to $5,700 from $5,450. Zener noted that the company’s manufacturing process requires very little owned land, and provides the highest returns. He cited increased earnings expectations as reasons for the price target upgrade. NVR, Inc. is well-positioned to take advantage of the boom in housing construction in 2022.

Investment firm Ensemble Capital mentioned NVR, Inc. in its Q4 2021 investor letter, stating:

“While the United States needs to build about 1.3 million new housing units a year just to keep up with demographic demand and replace homes that are torn down, we have built far fewer than that ever since the housing bust of over a decade ago. Now, with demand for homes surging, yet builders constrained due to supply chain and labor issues, companies like NVR are struggling to build new homes as fast as buyers are demanding them. While NVR, Inc.’s stock was strong all year, news flow in the home building industry during the fourth quarter pointed to continued strong gross margins as record high selling prices boosted results. NVR’s stock rallied 23% in the quarter to close out the year.

While Ensemble’s investment strategy is focused on owning companies that are already deeply competitively advantaged, we know that what really matters is that our companies remain competitively advantaged in the future. Competitive moats erode over time unless they are diligently and proactively maintained. So, we focus on identifying companies that have strong competitive positioning and which we believe will maintain those advantages over time.

The fact is that investors don’t get paid for observing how the world stands today. They get paid for correctly understanding how the world will evolve over time. If a company starts off with ultra-high competitive advantages, but has them diminished to just strong competitive advantages is likely to see its stock underperform as investors assign less value to the company. On the other hand, a company that starts off with moderate competitive advantages, but works to improve their positioning so they display strong competitive advantages, is likely to see its stock outperform as investor recalibrate the valuation, they assign the company to reflect the stronger positioning.”

8. Eagle Materials Inc. (NYSE:EXP)

Number of Hedge Fund Holders: 36

Eagle Materials Inc. (NYSE:EXP) is a construction materials firm that offers cement, concrete, gypsum wallboard, recycled paperboard, and products used to extract oil and gas. With shares trading at $141.84 on the New York Stock Exchange as of February 13, Eagle Materials Inc. is priced at appealing levels for investors, presenting an attractive long-term opportunity.

Out of all the hedge funds tracked by Insider Monkey, 36 were long Eagle Materials Inc. at the close of the third quarter, with combined holdings of $187.7 million. Royce & Associates was a leading shareholder of Eagle Materials Inc. at the end of Q4 2021, holding approximately 129,000 shares worth $21.4 million.

Financial performance for the fourth quarter of 2021 was above expectations for Texas-based Eagle Materials Inc.. The firm reported EPS of $2.53 for the Q4 2021, beating analysts’ forecasts by $0.06. Quarterly revenue of $462.94 million was also outperformed estimates by $1.89 million.

On January 27, Goldman Sachs analyst Jerry Revich raised the firm’s price target on Eagle Materials Inc. to $190 from $181 and maintained a ‘Buy’ rating on the shares. The analyst saw strong volumes and pricing achieved by the firm’s cement segment in the third quarter, as well as a price increase of 29% in its wallboard product range.

L1 Capital, an investment firm, talked about many stocks in its investor letter for the third quarter of 2021, and Eagle Materials Inc. was one of them. The fund said:

“We trimmed the Fund’s investment in Eagle Materials in early July, crystalising a strong gain on part of our investment. We remain very positive on Eagle Materials’ outlook, with the company positioned just outside the Fund’s top 10 holdings.”

7. United Rentals, Inc. (NYSE:URI)

Number of Hedge Fund Holders: 37

United Rentals, Inc. (NYSE:URI) is a rental company that leases construction equipment through its segments: General Rentals and Specialty. The company is well-equipped and perfectly aligned to benefit from the construction boom in 2022, with its 1,345 rental locations around the world, of which 1,149 are in in the United States.

On January 27, Goldman Sachs analyst Jerry Revich reiterated a ‘Buy’ rating on United Rentals, Inc. shares, and raised the firm’s price target to $425 from $415. Revich noted that the company’s above-expectations Q4 figures revealed a sequential acceleration in rental demand and improved cost control. He sees scope for United Rentals, Inc. to enhance its fleet by a good proportion in this year and 2023.

Reporting its fourth quarter figures on January 26, United Rentals, Inc. disclosed earnings per share of $7.39, which was above estimates by $0.70. The company’s revenue for Q4 amounted to $2.78 billion, which outperformed estimates by $40.20 million.

As of the third quarter, 37 out of 867 elite hedge funds tracked by Insider Monkey disclosed ownership of stakes in United Rentals, Inc., with a combined value of $1.38 billion. With approximately 1,466 shares worth $487 million, Aubrey Capital Management is the leading shareholder of United Rentals, Inc. at the end of the fourth quarter of 2021.

Carillon Tower Advisers mentioned United Rentals, Inc. in its Q1 2021 investor letter, stating:

“United Rental is an equipment rental company that primarily services construction and industrial companies, as well as manufacturers, utilities, homeowners, municipalities, and other government entities. The firm performed well in the first quarter as the company is a clear beneficiary of both a strengthening economy as well as a possible infrastructure bill. United Rentals’ business model performed exceptionally well in 2020 as the company generated substantial free cash flow by aggressively scaling back its capital expenditures. In 2021, we believe the company should be able to push its rental rates higher following a year of disciplined fleet management across the entire equipment rental industry. Additionally, the entire rental industry should benefit from tightness throughout the machinery sector as manufacturers struggle to meet demand due to supply chain constraints.”

6. Martin Marietta Materials, Inc. (NYSE:MLM)

Number of Hedge Fund Holders: 42

Martin Marietta Materials, Inc. (NYSE:MLM) offers natural-resource based construction aggregates including crushed stone, sand, and gravel, as well as chemical products used in wastewater treatment, flame retardants, pulp and paper production.

On December 17, Barclays analyst Adam Seiden upgraded Martin Marietta Materials, Inc. to ‘Overweight’ from ‘Equal Weight’ with a price target of $485, up from $415. The analyst sees a “once-in-a generation opportunity for long-cycle construction materials and services companies” in the United States, which favors companies in the machinery and construction sector such as Martin Marietta Materials, Inc..

On February 10, Martin Marietta Materials, Inc. announced its fourth quarter earnings, with EPS coming in at $3.15, above estimates by $0.22. Revenue figure of $1.50 billion was also above analysts’ forecasts by $41.92 million.

Investors were seen loading up on Martin Marietta Materials, Inc. stock, with 42 hedge funds bullish on the company stock at the close of the third quarter, up from 34 in the preceding quarter. Gardner Russo & Gardner was the leading shareholder in Martin Marietta Materials, Inc. in the fourth quarter, with roughly 1.17 million shares valued at $514.82 million.

In addition to Vulcan Materials Company, Caterpillar Inc. and Builders FirstSource, Inc., Martin Marietta Materials, Inc. is an exciting construction stock on the radar of investors.

5. Vulcan Materials Company (NYSE:VMC)

Number of Hedge Fund Holders: 43

Vulcan Materials Company deals in the provision of construction aggregates, which includes sand, gravel, crushed stone, cement, asphalt and concrete products. It is the largest producer of construction aggregates in the United States. 43 hedge funds disclosed ownership of stakes in Vulcan Materials Company at the close of Q3 2021, the same number of hedge funds holding stakes in the company as the previous quarter. The company stands to become one of the front-running beneficiaries of the US government’s spending on infrastructure around the country, after the passing of the $1.2 trillion infrastructure bill.

On December 22, BofA analyst Michael Feniger reinstated coverage of Vulcan Materials Company with a ‘Buy’ rating and $233 price target, stating that he sees a “sustained growth period” for the company underpinned by “structural and cyclical” tailwinds. Despite the share price reaching recent highs, Feniger believes Vulcan Materials Company’s (NYSE:VMC) rising gross margin per ton, accelerating pricing, and multi-year visibility amid an “uncertain” macro backdrop are all praise-worthy indicators.

In February, Weitz Investment Management published its Q4 2021 investor letter, where the fund mentioned Vulcan Materials Company. Here’s what it said:

“Vulcan Materials contributed to returns due to solid results and a bright outlook for the company’s prosaic, essential products. Aggregate volumes and backlogs are strong across end markets, pricing momentum is robust, and the federal infrastructure bill adds visibility into the amount of money that will be allocated to infrastructure projects.”

4. Caterpillar Inc. (NYSE:CAT)

Number of Hedge Fund Holders: 46

Caterpillar Inc. deals in the manufacturing and provision of construction and mining equipment, natural gas and diesel engines, industrial gas turbines and diesel-electric locomotives around the world. On February 3, Tigress Financial analyst Ivan Feinseth raised the firm’s price target on Caterpillar Inc. to $278 from $270 and maintained a ‘Buy’ rating on the shares. Feinseth holds that the post-pandemic recovery has led to pent-up demand in construction and an increase in commodity prices, leading to a surge in mining and construction spending. He sees these growth trends for mining equipment continue to accelerate in 2022.

As of the fourth quarter of 2021, Caterpillar Inc. posted earnings per share of $2.69, surpassing estimates by $0.43. The company raked in $13.80 billion in revenue for Q4, beating analysts’ forecasts by $558.88 million. Caterpillar Inc. also pays a healthy dividend yield of 2.21%, as of February 13.

46 hedge funds held positions worth $4.77 billion in Caterpillar Inc. at the end of the third quarter, down from 62 hedge funds in the previous quarter. Ken Fisher’s Fisher Asset Management was the leading shareholder of Caterpillar Inc. at the close of the fourth quarter, with around 7 million shares worth $1.44 billion.

3. D.R. Horton, Inc. (NYSE:DHI)

Number of Hedge Fund Holders: 51

D.R. Horton, Inc. (NYSE:DHI) is a homebuilding company based in the United States. With a market cap of $29.85 billion and a wide range of products and services, it is the largest homebuilder in the country. In 2021, D.R. Horton, Inc. saw its net income increase to $4.2 billion, a 76% increase year on year, while revenue saw a year-on-year jump of 37% to reach $27.8 billion. EPS for the fourth quarter of 2021 came in at $3.17, beating market estimates by $0.37. D.R. Horton, Inc. continues to dominate and grow its market share, with the main drivers for growth including diversification in products and geographic expansion.

Investors realize the upward trajectory enjoyed by construction companies such as D.R. Horton, Inc., as 51 hedge funds reported ownership of stakes in the company at the end of the third quarter of 2021, up from 45 in the quarter before.

On February 3, Barclays analyst Matthew Bouley maintained an ‘Overweight’ rating on D.R. Horton, Inc. stock, lowering the price target to $125 from $140. He holds that the company’s strength in production and the availability of inventory homes should result in an upward trend for the volume of sales and pricing power heading into the spring selling season, as demand outstrips supply in the home-construction industry.

2. Builders FirstSource, Inc. (NYSE:BLDR)

Number of Hedge Fund Holders: 53

Builders FirstSource, Inc. is a Texas-based firm offering construction materials and services, and is the biggest supplier of home construction materials in the United States. 53 hedge funds were bullish on Builders FirstSource, Inc. at the close of the third quarter, in comparison to 60 hedge funds reporting ownership of stakes in the company at the end of Q2 2021.

In early January, analyst Kurt Yinger of DA Davidson reiterated a ‘Buy’ rating on Builders FirstSource, Inc. shares, and raised the price target to $100 from $93, attributing the upgrade to the firm’s acquisition of New England building material firm National Lumber, which he sees adding to the company’s “already leading national scale”.

Merion Road Capital Management is an investment management firm which talked about Builders FirstSource, Inc. in its investor letter for the third quarter of 2021. Here’s what they said:

“I added to our position in Builder’s FirstSource (“BLDR”) during the quarter. BLDR is the largest national supplier of structural building products and value-added components to the residential construction market. They have been active in consolidating the industry, most notably with the merger of BMC earlier this year. Like other distributors, BLDR benefits from scale advantages that afford them a robust product offering, enhanced purchasing power, and fixed cost leverage. They will continue to acquire smaller competitors and have announced 5 new deals so far this year.

I view the strategic benefit of these acquisitions in three different buckets. There are the core tuck-in acquisitions of facilities and customer lists that increase scale and geographic reach. An example would be the company’s May acquisition of John’s Lumber, a lumber and specialty product distributor serving the Detroit MSA, at 0.5x revenue. There are product acquisitions that leverage their platform to increase distribution and improve the product offering. For instance, last month BLDR announced the acquisition of California TrusFrame, a designer and manufacturer of prefabricated components like trusses and wall panels, at 1.3x revenue. And lastly BLDR has begun investing in software and services. In June they spent $450mm on the purchase of WTS Paradigm, a software company that addresses the complexity around building configuration, estimating, and manufacturing, at 9.0x revenue. By utilizing software to in the planning process, WTS Paradigm cuts down on material and labor waste, ensures an optimal fit of product and design, and eases the contractor’s workload. BLDR has followed this up with a much smaller software acquisition in September.

BLDR is in the very early innings of their software investment, so it is difficult to pinpoint exactly how it will impact the company in the coming years. Management believes that there is a lot of low hanging fruit, pointing to a McKinsey study ranking the construction industry as second to last on overall digitization. If anyone has had any work done to their house, I am sure they can anecdotally attest to this. BLDR plans to leverage WTS Paradigm to increase internal productivity (i.e. improved estimating leading to fewer visits to the job site), cross-sell the software to existing clients, and drive greater adoption of value-added products. So thinking a few years out I think the goal would be to have higher margins on their commodity business, a greater mix of revenue coming from value added products, a stronger relationship with their customer, and an enhanced competitive advantage…” (Click here to see the full text)

1. Deere & Company (NYSE:DE)

Number of Hedge Fund Holders: 54

Deere & Company offers equipment used in construction, roadbuilding, agriculture, forestry and turf care. Although agriculture equipment remains its biggest segment with $22.8 billion worth of sales in 2020, Deere & Company boasts a strong sales history in its construction and forestry equipment segment, which garnered $9.2 billion in sales in 2020 and continues to grow as demand for construction equipment grows.

On February 10, DA Davidson analyst Michael Shlisky maintained a ‘Buy’ rating on Deere & Company and upped the firm’s price target to $455 from $400. The analyst sees record agriculture produce profits in 2022, which will help growth for the company in this year and FY2023 as well. As of late, Deere & Company has been growing its margins, and enhancing its footprint in automated and digital solutions. In January, Deere & Company unveiled a fully autonomous tractor at CES 2022 consumer electronics show held in Las Vegas. The tractor will be ready for farmers to buy later this year, and will only need one-time configuration to operate autonomously on the field. Owing to this and other tailwinds for the construction sector in general, Deere & Company has gained 24.87% in the last 12 months, and 14.52% year to date, according to figures as of February 13.

Investment management firm Harding Loevner talked about Deere & Company in its Q2 2021 investor letter. Here’s what the fund said:

“In the US, where we increased our weight as part of our recent portfolio manager transition, two of our industrial holdings stood out (one is) John Deere. John Deere delivered stronger-than-expected quarterly earnings and raised its guidance for the full-year. Sales of Deere’s tractors and combine harvesters are underpinned by Chinese demand for agriculture products and the bioethanol market rebounding with oil prices.”

You can also take a peek at 15 Longest Pipelines in the US and Billionaire David Tepper’s Top 10 Stocks.

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