In this article, we discuss 11 best cement and construction materials stocks to buy now.
The idea of fixing old buildings in different cities in the United States has taken root and the number of renovations has hit an all-time high recently. According to the American Institute of Architects (AIA), most of the billings at architecture firms have been from renovation orders rather than new construction. Kermit Baker, the AIA’s chief economist, said that the last time the demand for architecture services was so largely skewed towards renovations was during the Great Depression. For the first time in 20 years, the AIA has gathered data which indicates that renovations have exceeded 50% of the total architectural spend.
Building renovation is incremental to lowering the significant carbon footprint of the construction industry. Many buildings are updated with improved energy efficiency solutions and HVAC systems, which boosts demand for construction materials firms. A weaker, recessionary economy means that renovation efforts will continue to dominate the construction industry, whereas a strong economy will signal new construction. As per construction industry group Associated General Contractors, new construction rates will potentially begin to recover in two years or so.
To ride the renovation wave in the construction sector, and to benefit from the rebound in new construction in a few years, investors can add cement and construction materials stocks to their portfolios. Some of the top players in the materials sector include Steel Dynamics, Inc. (NASDAQ:STLD), Vulcan Materials Company (NYSE:VMC), and Martin Marietta Materials, Inc. (NYSE:MLM).
Our Methodology
We selected the following materials stocks based on positive analyst coverage, strong business fundamentals, and future growth prospects. We have assessed the hedge fund sentiment from Insider Monkey’s database of 895 elite hedge funds tracked as of the end of the second quarter of 2022.
Best Cement and Construction Materials Stocks To Buy Now
11. James Hardie Industries plc (NYSE:JHX)
Number of Hedge Fund Holders: 3
James Hardie Industries plc (NYSE:JHX) was founded in 1888 and is based in Dublin, Ireland. The company manufactures and sells fiber cement, fiber gypsum, and cement bonded building products in the United States, Australia, Europe, New Zealand, the Philippines, and Canada. James Hardie Industries plc (NYSE:JHX) operates through three segments – North America Fiber Cement, Asia Pacific Fiber Cement, and Europe Building Products.
On September 29, BofA analyst Shaurya Visen initiated coverage of James Hardie Industries plc (NYSE:JHX) with a Buy rating and a $29.80 price target, which represents 43% potential upside. The analyst said the stock is “misunderstood and mispriced.” The analyst sees long-term favorable drivers for fiber cement and likes James Hardie Industries plc (NYSE:JHX)’s “strong” competitive positioning.
According to Insider Monkey’s data, 3 hedge funds were long James Hardie Industries plc (NYSE:JHX) at the end of the second quarter of 2022, compared to 4 funds in the prior quarter. Jim Simons’ Renaissance Technologies is the largest stakeholder of the company, with 277,163 shares worth $6 million.
In addition to Steel Dynamics, Inc. (NASDAQ:STLD), Vulcan Materials Company (NYSE:VMC), and Martin Marietta Materials, Inc. (NYSE:MLM), James Hardie Industries plc (NYSE:JHX) is one of the best materials stocks to invest in.
10. CRH plc (NYSE:CRH)
Number of Hedge Fund Holders: 12
CRH plc (NYSE:CRH) is headquartered in Dublin, Ireland, operating as a manufacturer and distributor of building materials. CRH plc (NYSE:CRH) manufactures and supplies cement, lime, aggregates, ready mixed concrete, and asphalt products, as well as retaining walls, patio products, glass and glazing products, and architectural hardware. On September 20, CRH plc (NYSE:CRH) concluded the latest phase of its share buyback program, returning another $300 million of cash to shareholders. This brings total cash returned to shareholders under the current share buyback plan to $3.8 billion since its initiation in May 2018. CRH plc (NYSE:CRH) is one of the best materials stocks to buy now.
On September 13, investment advisory JPMorgan maintained an Overweight rating on CRH plc (NYSE:CRH) but trimmed the price target on the shares to EUR 50 from EUR 59. Analyst Elodie Rall issued the ratings update.
According to Insider Monkey’s Q2 data, 12 hedge funds were long CRH plc (NYSE:CRH), with collective stakes worth $60.8 million, compared to 9 funds in the prior quarter worth $23.2 million. Edgar Wachenheim’s Greenhaven Associates is the leading position holder in the company, with 752,445 shares worth $26.20 million.
Here is what L1 Capital International specifically said about CRH plc (NYSE:CRH) in its Q2 2022 investor letter:
“CRH plc (NYSE:CRH) was outlined in detail in our December 2021 Quarterly Report. Since then, the tragic war in Ukraine commenced with no signs of resolution. This war and associated sanctions on Russia have led to major disruptions to European energy markets. CRH is a relatively energy intensive business and around 20% of the Group’s operations are in Europe. We expect they will be negatively impacted by higher energy prices and reduced economic activity. Around 75% of CRH’s operations are in North America and will be less impacted compared to the European operations.
We have followed and analyzed the global building products industry for nearly 25 years and the current share price of CRH presents an investment opportunity that rarely arises. CRH recently sold a business for US$3.8 billion, equating to almost 15x EBIT. In comparison, the remainder of CRH which consists of many businesses which are higher quality than the divested operation, is trading on around 9x EBIT, 11x PE, 9% free cashflow, 4% dividend yield and CRH is buying back around 3% of its shares annually. CRH has delivered shareholders a 15% return per annum, compounded over 50 years. The current share price provides compelling value for investors with a longer-term horizon.”
9. Summit Materials, Inc. (NYSE:SUM)
Number of Hedge Fund Holders: 15
Summit Materials, Inc. (NYSE:SUM) is a Colorado-based company that provides construction materials and related downstream products for the public infrastructure, residential, and non-residential end markets. The company’s products include aggregates, cement, ready-mix concrete, asphalt paving mixes, concrete products, and plastics components. It is one of the best materials stocks to consider.
Citi analyst Anthony Pettinari on October 10 reiterated a Buy recommendation on Summit Materials, Inc. (NYSE:SUM) but lowered the price target on the stock to $29 from $35. The analyst trimmed estimates in North America building products ahead of the Q3 earnings season to reflect softening residential demand, cost pressure, unfavorable weather, and ongoing labor and material availability issues. Within building products, the analyst leans towards aggregates producers as he expects higher public construction to meaningfully offset slow residential demand.
According to Insider Monkey’s second quarter database, 15 hedge funds were long Summit Materials, Inc. (NYSE:SUM), compared to 21 funds in the earlier quarter. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 893,982 shares worth $20.8 million.
Here is what Carillon Eagle Small Cap Growth Fund has to say about Summit Materials, Inc. (NYSE:SUM) in its Q2 2022 investor letter:
“Summit Materials is a vertically integrated construction materials-based company that supplies aggregates, cement, ready-mix concrete, and asphalt in the United States and British Columbia. Fears of a potential economic slowdown and a corresponding cooling in construction activity weighed on the company’s shares in the quarter. However, Summit has made noteworthy strides in optimizing its business portfolio through the divestiture of underperforming assets, allowing it to drive margins higher through efficiency gains and accretive acquisitions. Summit also is the beneficiary of ongoing migration trends favoring construction activity in the exurban and rural markets it primarily serves.”
8. Beacon Roofing Supply, Inc. (NASDAQ:BECN)
Number of Hedge Fund Holders: 19
Next on our list of the best materials stocks is Beacon Roofing Supply, Inc. (NASDAQ:BECN), a Virginia-based company that distributes residential and non-residential roofing materials and complementary building products to contractors, home builders, building owners, lumberyards, and retailers. On October 4, Beacon Roofing Supply, Inc. (NASDAQ:BECN) reported that it had partnered with SumoQuote, which provides an integration of SumoQuote’s technology with Beacon’s eCommerce platform, Beacon PRO+. This partnership will offer a streamlined process to deliver custom quotes to customers. Beacon Roofing Supply, Inc. (NASDAQ:BECN) is one of the top materials stocks to buy now.
On October 20, Deutsche Bank analyst Joe Ahlersmeyer maintained a Buy rating on Beacon Roofing Supply, Inc. (NASDAQ:BECN) but slashed the price target on the shares to $79 from $90. The analyst thinks the Q3 earnings season for building products will be characterized by strong earnings results and mostly reiterated short-term guidance, but he would not be surprised by “yet another move lower” in estimates for next year.
According to Insider Monkey’s data, 19 hedge funds were bullish on Beacon Roofing Supply, Inc. (NASDAQ:BECN) at the end of Q2 2022, up from 14 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management held the leading stake in the company, comprising 1.3 million shares worth nearly $68 million.
Here is what Fiduciary Management has to say about Beacon Roofing Supply, Inc. (NASDAQ:BECN) in its Q3 2021 investor letter:
“Beacon is the largest publicly traded (#2 overall) distributor of roofing materials and complementary building products in the U.S. and Canada. Beacon serves more than 90,000 customers and offers 140,000 SKUs from over 400 branches throughout all 50 states (97% of sales) and 6 Canadian provinces (3% of sales). Beacon makes 1.7 million annual deliveries (within a two-hour radius) using its fleet of specialized trucks. Since the sale of the non-core Interiors division (2021), their run-rate sales have been 53% Residential Roofing; 25% Commercial Roofing; and 22% Complementary Building Products (siding, windows, specialty exterior building products, insulation, and waterproofing systems).
Good Business
- Manufacturers and distributors operate in a rational and consolidated market, with the top three distributors accounting for 54% of a $28 billion industry (almost two times what they had ten years ago).
- The industry is led by ABC Supply Co. Inc. (24% share), Beacon Roofing (20% share), and SRS (10% share), with the remaining 46% held by 1,500 smaller distributors.
- It is estimated that roughly 80% of roofing sales are replacement, and that the U.S. housing stock is now over 40 years old on average. Ninety-four percent of U.S. re-roofing demand is thought to be non-discretionary.
- With management’s focus on organic growth and maintaining discipline, rising returns should follow.
- Aided by the Interiors divestiture, the fiscal third quarter 2021 net debt-to-EBITDA ratio dropped to 2.4 times, providing financial flexibility and likely the ability to buy back stock and issue dividends.
- Beacon is a simple scale business, and roofing distribution is unlikely to undergo major change.
Valuation
- Despite newfound financial health and flexibility, and strong fundamentals, Beacon’s shares have receded from $60 in May to $50 in August (-17%), and the stock trades at a discount to its 10-year average for the next twelve months P/E (11 times), enterprise value-to-EBITDA (9 times), and enterprise value-to-sales (0.85 times). With steady execution, we think there is scope for Beacon to trade at a premium to 10-year averages and north of 1 times EV/Sales.
- If Beacon were to grow 4.5% and reach the low end of their EBITDA margin target by fiscal year 2026 (9%-11%) and were ascribed a 15 P/E ratio, the compound return would be approximately 15%.
Management
- New CEO Julian Francis has refocused the company on its core Roofing/Exteriors business (divesting Interiors and substantially de-risking the balance sheet), and inward on branch productivity, margin improvement, organic growth, and realizing the benefits of scale.
- Frank Lonegro, CFO, recently joined Beacon from CSX Corporation, where he was the CFO and Executive VP.
Investment Thesis
Beacon is a simple business driven by largely non-cyclical, non-discretionary demand. While Beacon has achieved scale in an industry that has consolidated substantially over the last decade, under prior management they were saddled with (1) a challenging and costly integration (2) substantial debt and interest costs, and (3) a separate Interiors business. Under their new CEO they sold Interiors, and are progressing on strategic initiatives. Strong industry fundamentals have led to rapid restoration of financial flexibility and Beacon’s future now looks solid. While expecting a sequential slowdown in growth (in part due to lower y/y storm activity) and a decline in margin, we think enhanced focus on organic growth and structural margin improvement should help reaccelerate future earnings, particularly as replacement demand will likely benefit from the strong build period from 2000-2006.”
7. Masonite International Corporation (NYSE:DOOR)
Number of Hedge Fund Holders: 19
Masonite International Corporation (NYSE:DOOR) is a Florida-based company that designs, manufactures, markets, and distributes interior and exterior doors for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets worldwide.
Deutsche Bank analyst Joe Ahlersmeyer on October 20 maintained a Buy rating on Masonite International Corporation (NYSE:DOOR) but slashed the price target on the shares to $99 from $135. If earnings season changes little, construction stocks will potentially trade cheaply until the most bearish of negative revision scenarios can be taken off the table, which is unlikely to happen until next year, contended the analyst.
According to Insider Monkey’s data, 19 hedge funds were long Masonite International Corporation (NYSE:DOOR) at the end of the second quarter of 2022, compared to 20 funds in the preceding quarter. Kevin Oram and Peter Uddo’s Praesidium Investment Management Company is the leading position holder in the company, with nearly 1.5 million shares valued at $114.2 million.
6. Eagle Materials Inc. (NYSE:EXP)
Number of Hedge Fund Holders: 22
Eagle Materials Inc. (NYSE:EXP) is a Texas-based company that produces and supplies heavy construction materials and light building materials in the United States. It operates through Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard segments. Eagle Materials Inc. (NYSE:EXP) paid a dividend of $0.14 per share to shareholders on October 14. Eagle Materials Inc. (NYSE:EXP) is one of the top materials stocks to monitor.
On October 10, Citi analyst Anthony Pettinari reaffirmed a Buy recommendation on Eagle Materials Inc. (NYSE:EXP) but lowered the price target on the shares to $136 from $146.
According to Insider Monkey’s data, 22 hedge funds were long Eagle Materials Inc. (NYSE:EXP) at the end of the second quarter of 2022, compared to 28 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with 183,884 shares worth $20.2 million.
Like Steel Dynamics, Inc. (NASDAQ:STLD), Vulcan Materials Company (NYSE:VMC), and Martin Marietta Materials, Inc. (NYSE:MLM), smart investors are bullish on Eagle Materials Inc. (NYSE:EXP) for exposure to the materials sector.
Here is what L1 Capital International specifically said about Eagle Materials Inc. (NYSE:EXP) in its Q2 2022 investor letter:
“The investment thesis for Eagle Materials Inc. (NYSE:EXP) was featured in our December 2020 Quarterly Report. Since then, the business has met our expectations. Eagle Materials is a low-cost regional producer of cement and wallboard. The U.S. cement industry is sold out, with imports required to meet demand levels. Eagle Materials operates in the centre of the U.S. where imports from the coast are prohibitively expensive. These sold-out conditions are before an expected increase in demand in 2023 and beyond as the U.S. implements its US$1 trillion infrastructure spending program.
Eagle Materials’ wallboard operations also have a cost advantage over its competitors, predominantly using natural gypsum located next to its manufacturing facilities, rather than relying on more expensive synthetic gypsum derived from the waste generated by coal power plants or imported natural gypsum.
Both the cement and gypsum industry have increased prices to offset cost inflation (see Figure 11). Eagle Materials has benefitted from these price increases and expanded margins due to its low-cost position in the industry. While we expect some softening in the wallboard industry due to reduced new residential construction, we consider Eagle Materials is currently materially undervalued, trading on 11x EV/EBIT, 12x PE and a 10% free cash flow yield.”
5. Commercial Metals Company (NYSE:CMC)
Number of Hedge Fund Holders: 23
Commercial Metals Company (NYSE:CMC) was founded in 1915 and is headquartered in Irving, Texas. The company primarily manufactures, recycles, and fabricates steel and metal products in the United States, Poland, China, and internationally. On October 13, Commercial Metals Company (NYSE:CMC) posted a FQ4 non-GAAP EPS of $2.45 and a revenue of $2.4 billion, beating market estimates by $0.22 and $40 million, respectively. The company on October 11 also declared a $0.16 per share quarterly dividend, a 14.3% increase from its prior dividend of $0.14. The dividend is payable on November 10, to shareholders of record on October 27.
Citi analyst Alexander Hacking on October 14 raised the price target on Commercial Metals Company (NYSE:CMC) to $44 from $42 and maintained a Neutral rating on the shares after the FQ4 results. The analyst expects Commercial Metals Company (NYSE:CMC)’s results to remain “very strong” in the first half of 2023. The company demonstrated a positive picture on the U.S. construction cycle, the analyst told investors in a research note.
According to Insider Monkey’s data, 23 hedge funds were long Commercial Metals Company (NYSE:CMC) at the end of June 2022, compared to 21 funds in the earlier quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with 2.4 million shares worth nearly $80 million.
Here is what Fairholme Capital Management specifically said about Commercial Metals Company (NYSE:CMC) in its Q2 2022 investor letter:
“Commercial Metals Company (NYSE:CMC) recycles scrap into rebar essential for the strengthening of concrete found everywhere. CMC is priced at five times estimated earnings and pays a 1.6% dividend that I expect to grow with profits. To better understand the Fund’s recent infrastructure investments, I recommend Vaclav Smil’s How the World Really Works.”
4. Steel Dynamics, Inc. (NASDAQ:STLD)
Number of Hedge Fund Holders: 29
Steel Dynamics, Inc. (NASDAQ:STLD) operates as a steel producer and metal recycler in the United States. It operates through three segments – Steel Operations, Metals Recycling Operations, and Steel Fabrication Operations. Steel Dynamics, Inc. (NASDAQ:STLD) reported better than anticipated Q3 adjusted earnings and revenues, and steel shipments came in at a quarterly record of 3.2 million tons. Steel Dynamics, Inc. (NASDAQ:STLD) is one of the best materials stocks to buy now.
On October 21, BMO Capital analyst David Gagliano raised the price target on Steel Dynamics, Inc. (NASDAQ:STLD) to $89 from $77 and reiterated a Market Perform rating on the shares. He is lifting his short-term estimates after Q3 results as downstream fabrication contributions “continue to surprise to the upside.”
According to Insider Monkey’s Q2 data, 29 hedge funds were long Steel Dynamics, Inc. (NASDAQ:STLD), compared to 30 funds in the prior quarter. Cliff Asness’ AQR Capital Management is the biggest stakeholder of the company, with 2.12 million shares worth $137.75 million.
3. Vulcan Materials Company (NYSE:VMC)
Number of Hedge Fund Holders: 34
Vulcan Materials Company (NYSE:VMC) was founded in 1909 and is headquartered in Birmingham, Alabama. The company produces and supplies construction aggregates primarily in the United States, operating through four segments – Aggregates, Asphalt, Concrete, and Calcium. On October 14, Vulcan Materials Company (NYSE:VMC) declared a quarterly dividend of $0.40 per share, in line with previous. The dividend is payable on December 5, to shareholders of record on November 15. It is one of the premier materials stocks to buy now.
DA Davidson analyst Brent Thielman maintained a Buy rating on Vulcan Materials Company (NYSE:VMC) but lowered the price target on the stock to $200 from $205. The analyst attributed his price target change to short-term volume weakness associated with supply constraints, rail operations, and weather, while also citing the potential for positive industry volume expectations. His surveys suggest that optimistic pipelines into 2023 “lend cautious optimism” for Vulcan Materials Company (NYSE:VMC).
According to Insider Monkey’s data, 34 hedge funds were long Vulcan Materials Company (NYSE:VMC) at the end of June 2022, compared to 36 funds in the prior quarter. Sharlyn C. Heslam’s Stockbridge Partners is the biggest position holder in the company, with 2 million shares worth $286.4 million.
Here is what Weitz Investment Management Partners Value Fund has to say about Vulcan Materials Company (NYSE:VMC) in its Q4 2021 investor letter:
“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.”
2. Trex Company, Inc. (NYSE:TREX)
Number of Hedge Fund Holders: 36
Trex Company, Inc. (NYSE:TREX) is a Virginia-based company that manufactures and distributes decking, railing, and outdoor living products and accessories for residential and commercial markets in the United States. On October 20, Deutsche Bank analyst Joe Ahlersmeyer reiterated a Buy rating on Trex Company, Inc. (NYSE:TREX) but lowered the price target on the shares to $80 from $87. The analyst believes the Q3 earnings season for building products will demonstrate continued robust earnings results and mostly reiterated short-term guidance, but estimates might be revised down for next year.
According to Insider Monkey’s data, 36 hedge funds were bullish on Trex Company, Inc. (NYSE:TREX) at the end of the second quarter of 2022, compared to 38 funds in the earlier quarter. Charles Montanaro’s Montanaro Asset Management is the leading position holder in the company, with 565,000 shares worth $30.7 million.
Here is what Carillon Eagle Small Cap Growth Fund has to say about Trex Company, Inc. (NYSE:TREX) in its Q1 2022 investor letter:
“Trex (NYSE:TREX) manufactures high-performance composite decking and railing products, as well as custom- engineered railing and staging systems, for the commercial and multi-family market. After surging in the prior quarter, the company’s shares declined as rising interest rates weighed a bit on investor sentiment in stocks tied to the housing industry. Despite this, demand for the firm’s products has remained healthy, and we believe Trex should be well positioned to weather any potential downturn in the overall housing industry as its business skews heavily towards repair and remodeling as opposed to new construction.”
1. Martin Marietta Materials, Inc. (NYSE:MLM)
Number of Hedge Fund Holders: 39
Martin Marietta Materials, Inc. (NYSE:MLM) was founded in 1939 and is headquartered in Raleigh, North Carolina. It is a natural resource-based building materials company, providing aggregates and heavy-side building materials to the construction industry in the United States and internationally. On August 10, Martin Marietta Materials, Inc. (NYSE:MLM) declared a $0.66 per share quarterly dividend, an 8.2% increase from its prior dividend of $0.61. The dividend was distributed to shareholders on September 30. Martin Marietta Materials, Inc. (NYSE:MLM) is one of the premier materials stocks to buy now.
On October 12, DA Davidson analyst Brent Thielman maintained a Buy recommendation on Martin Marietta Materials, Inc. (NYSE:MLM) but trimmed the price target on the shares to $385 from $395. The analyst attributed his price target change to near-term volume slowness associated with supply constraints, rail operations, and uncertain weather. He added that his discussions with non-residential contractors suggest that positive pipelines into 2023 “lend cautious optimism” for Martin Marietta Materials, Inc. (NYSE:MLM).
Among the hedge funds tracked by Insider Monkey, Martin Marietta Materials, Inc. (NYSE:MLM) was part of 39 public stock portfolios at the end of Q2 2022, compared to 35 in the prior quarter. Robert Joseph Caruso’s Select Equity Group is the biggest stakeholder of the company, with nearly 4 million shares worth $1.2 billion.
Here is what Diamond Hill Capital Management specifically said about Martin Marietta Materials, Inc. (NYSE:MLM) in its Q2 2022 investor letter:
“Martin Marietta Materials, Inc. (NYSE:MLM) is the second largest aggregates producer and distributor in the US, with competitively positioned cement, ready-mix, asphalt and magnesia specialty businesses. Its share price recently sold off due to concerns about a slowdown in the US residential housing market, giving us the opportunity to initiate a position at an attractive price. We believe Martin Marietta is strategically positioned in markets with strong growth potential, in states that have multi-year department of transportation (DOT) plans approved, and the Infrastructure Investment and Jobs Act (IIJA) will begin distributing funds later this year. Additionally, in the event of an economic downturn, the company has the ability to pull from its prior playbook as a stronger, more geographically diversified player to acquire smaller companies, resulting in better market consolidation.”
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Disclosure: None. 11 Best Cement and Construction Materials Stocks To Buy Now is originally published on Insider Monkey.
