12 Best Construction Stocks To Buy Now

In this article, we discuss 12 best construction stocks to buy now.

Although consumer inflation decreased slightly in October, prices for services and rents are expected to rise, continuing the path of steep increases that have crushed the stock market in 2022. Apart from food and energy, core CPI is forecasted to have climbed by 0.5%, or 6.5% on an annual basis. This is less than the 0.6% jump in September, which represented an annual pace of 6.6%. The central bank has hinted that the future rate hikes will be smaller, although interest rates will continue to climb to rein in inflation.

A slower-than-expected rate of inflation sparked a rally in bond prices, which trims their yield. The 10-year Treasury yield dropped below 4% to 3.86% on November 10. This also indicates some relief in mortgage rates. The 30-year fixed-rate mortgage rate exceeded the 7% mark, touching 7.08% for the week ended November 10, as per Freddie Mac. The real estate sector on November 10 gained 6.7%, becoming the best-performing S&P 500 segment. Firms like D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and Toll Brothers, Inc. (NYSE:TOL) were the most prominent beneficiaries of the real estate rally. 

Our Methodology 

We selected the following construction stocks based on growth fundamentals, positive analyst coverage, and strong market visibility. We have arranged the list according to the number of hedge fund holders in each firm, tracked by Insider Monkey as of the second quarter of 2022.

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Best Construction Stocks To Buy Now

12. CRH plc (NYSE:CRH)

Number of Hedge Fund Holders: 12

CRH plc (NYSE:CRH) is an Ireland-based company that manufactures and distributes building materials. It operates through three segments – Americas Materials, Europe Materials, and Building Products. CRH plc (NYSE:CRH) commenced its share repurchase program in May 2018, and as of September 2022 it has returned $3.8 billion to shareholders under its ongoing share buyback plan. 

On September 13, JPMorgan analyst Elodie Rall maintained an Overweight rating on CRH plc (NYSE:CRH) but lowered the price target on the shares to EUR 50 from EUR 59. 

According to Insider Monkey’s data, 12 hedge funds were bullish on CRH plc (NYSE:CRH) at the end of the second quarter of 2022, compared to 9 funds in the prior quarter. Edgar Wachenheim’s Greenhaven Associates is the leading position holder in the company, with 752,445 shares worth $26.20 million. 

Like D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and Toll Brothers, Inc. (NYSE:TOL), CRH plc (NYSE:CRH) is one of the best construction stocks to monitor. 

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 cash flow, 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.”

11. Summit Materials, Inc. (NYSE:SUM)

Number of Hedge Fund Holders: 15

Summit Materials, Inc. (NYSE:SUM) is a Colorado-based company that manufactures and sells construction materials and downstream products for the public infrastructure, residential, and non-residential end markets. On November 2, Summit Materials, Inc. (NYSE:SUM) reported a Q3 non-GAAP EPS of $0.73 and a revenue of $686.01 million, topping analysts’ estimates by $0.01 and $21.16 million, respectively. It is one of the best construction stocks to invest in. 

Citi analyst Anthony Pettinari on November 8 raised the price target on Summit Materials, Inc. (NYSE:SUM) to $33 from $29 and reiterated a Buy recommendation on the shares following the in-line Q3 results.

According to the second quarter database of Insider Monkey, Summit Materials, Inc. (NYSE:SUM) was part of 15 hedge fund portfolios, compared to 21 in the prior quarter. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 893,982 shares worth about $21 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.”

10. PulteGroup, Inc. (NYSE:PHM)

Number of Hedge Fund Holders: 19

PulteGroup, Inc. (NYSE:PHM) is a Georgia-based homebuilding company that acquires and develops land for residential purposes. PulteGroup, Inc. (NYSE:PHM) is one of the top construction stocks to invest in. PulteGroup, Inc. (NYSE:PHM) was one of the most prominent winners of the real estate rally on November 10, with the stock gaining 13%. 

On October 26, BTIG analyst Carl Reichardt reaffirmed a Buy rating on PulteGroup, Inc. (NYSE:PHM) but lowered the price target on the shares to $50 from $52. PulteGroup, Inc. (NYSE:PHM)’s Q3 earnings miss was caused by weak homebuilding revenue and a larger than forecasted unit order decline, the analyst told investors. 2023 will be a “trough year” for housing demand, but the analyst still expects a 21% return on equity for PulteGroup, Inc. (NYSE:PHM). 

Among the hedge funds tracked by Insider Monkey, Harris Associates is the biggest position holder in PulteGroup, Inc. (NYSE:PHM) as of Q2 2022, with 4.8 million shares worth $191.6 million. 

Here is what Miller Value Partners specifically said about PulteGroup, Inc. (NYSE:PHM) in its Q2 2022 investor letter:

“Homebuilders and financials, the worst losers during the Financial Crisis crash, plummeted. Some homebuilders, like PulteGroup, Inc. (NYSE:PHM), traded down to half their financial crisis lows despite reporting housing improvements for the first time. Fear ruled in the short term, but fundamentals ultimately prevailed. Homebuilders were top performers in 2012 posting triple-digit increases in some cases. Opportunity Equity was a top performer that year.”

9. Cavco Industries, Inc. (NASDAQ:CVCO)

Number of Hedge Fund Holders: 21

Cavco Industries, Inc. (NASDAQ:CVCO) is an Arizona-based company that designs, constructs, and sells manufactured homes in the United States. The company markets its manufactured homes under the Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood, and MidCountry brands. It is one of the premier construction stocks to invest in. 

On November 3, Cavco Industries, Inc. (NASDAQ:CVCO) posted a Q3 GAAP EPS of $8.25, beating market estimates by $2.37. The revenue of $577 million climbed 60.5% year-over-year and outperformed Wall Street consensus by $22.22 million. 

Craig-Hallum analyst Greg Palm on November 7 reiterated a Buy rating on Cavco Industries, Inc. (NASDAQ:CVCO) but lowered the price target on the shares to $290 from $335. The analyst noted that Cavco Industries, Inc. (NASDAQ:CVCO) announced solid Q3 results with both revenues and earnings nicely ahead of estimates. 

According to Insider Monkey’s data, 21 hedge funds were bullish on Cavco Industries, Inc. (NASDAQ:CVCO) at the end of Q2 2022, compared to 26 funds in the prior quarter. Richard Scott Greeder’s Broad Bay Capital is the largest stakeholder of the company, with 268,000 shares worth $52.5 million. 

8. 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. On November 8, Eagle Materials Inc. (NYSE:EXP) declared a $0.25 per share quarterly dividend, in line with previous. The dividend is payable on January 12, 2023 to shareholders of record on December 16. 

On October 10, Citi analyst Anthony Pettinari maintained a Buy rating on Eagle Materials Inc. (NYSE:EXP) but trimmed the price target on the shares to $136 from $146. The analyst slashed estimates in North America building products ahead of the Q3 earnings season and prefers aggregates producers as he forecasts high public construction to widely offset slow residential demand.

According to Insider Monkey’s data, 22 hedge funds were bullish on 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. 

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.”

7. M/I Homes, Inc. (NYSE:MHO)

Number of Hedge Fund Holders: 23

M/I Homes, Inc. (NYSE:MHO) was founded in 1976 and is based in Columbus, Ohio. The company builds single-family homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee. On October 26, M/I Homes, Inc. (NYSE:MHO) reported a Q3 GAAP EPS of $4.67, beating market estimates by $0.62. Shareholders’ equity reached a record high of $1.9 billion, a 25% increase from a year ago, with book value per share of $71. The return on equity came in at 27%. M/I Homes, Inc. (NYSE:MHO) is one of the premier construction stocks to buy now. 

Wedbush analyst Jay McCanless on October 27 reiterated an Outperform rating on M/I Homes, Inc. (NYSE:MHO) but trimmed the price target on the shares to $63 from $83 following the Q3 results. 

According to Insider Monkey’s data, 23 hedge funds were long M/I Homes, Inc. (NYSE:MHO) at the end of the second quarter of 2022, compared to 27 funds in the last quarter. Clint Carlson’s Carlson Capital is a prominent shareholder of the company, with 285,693 shares worth $11.3 million. 

6. Skyline Champion Corporation (NYSE:SKY)

Number of Hedge Fund Holders: 27

Skyline Champion Corporation (NYSE:SKY) is a Michigan-based company that offers manufactured and modular homes, RVs, accessory dwelling units, and modular buildings for the multi-family and hospitality sectors in North America. On November 1, Skyline Champion Corporation (NYSE:SKY) posted a Q3 GAAP EPS of $2.51 and a revenue of $806.83 million, outperforming market estimates by $0.67 and $112.23 million, respectively. The revenue jumped 54% on a year-over-year basis. 

Craig-Hallum analyst Greg Palm on November 3 maintained a Buy recommendation on Skyline Champion Corporation (NYSE:SKY) but lowered the price target on the shares to $65 from $75. While Q3 results were resilient, the only metric that mattered to him was the significant sequential decline in backlog, the analyst argued.

According to Insider Monkey’s Q2 data, 27 hedge funds were bullish on Skyline Champion Corporation (NYSE:SKY), compared to 35 funds in the last quarter. Michael Kaufman’s MAK Capital One is the largest stakeholder of the company, with 3 million shares worth $142.2 million. 

In addition to D.R. Horton, Inc. (NYSE:DHI), Lennar Corporation (NYSE:LEN), and Toll Brothers, Inc. (NYSE:TOL), elite hedge funds are piling into Skyline Champion Corporation (NYSE:SKY) for exposure to the construction industry. 

Here is what Wasatch Small Cap Value Fund has to say about Skyline Champion Corporation (NYSE:SKY) in its Q4 2021 investor letter:

“Manufactured-housing producer Skyline Champion Corp. (SKY) also helped the Fund’s results. Skyline has executed well and has benefited from simplification of its product line. Broader industry trends, such as rising housing demand and improved financing for lower-income buyers, were additional tailwinds for Skyline’s stock.”

5. NVR, Inc. (NYSE:NVR)

Number of Hedge Fund Holders: 32

NVR, Inc. (NYSE:NVR) is a Virginia-based homebuilder in the United States. It engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, and Heartland Homes brands. NVR, Inc. (NYSE:NVR)’s Q3 revenue of $2.74 billion climbed 17.1% year-over-year, beating estimates by $170 million. Settlements in the third quarter of 2022 increased by 5% to 5,949 units, compared to 5,683 units in the third quarter of 2021.

On November 14, KeyBanc analyst Kenneth Zener raised the price target on NVR, Inc. (NYSE:NVR) to $5,120 from $4,800 and kept an Overweight rating on the shares. 

According to Insider Monkey’s Q2 data, NVR, Inc. (NYSE:NVR) was part of 32 hedge fund portfolios, compared to 39 in the prior quarter. Ric Dillon’s Diamond Hill Capital is the largest stakeholder of the company, with 127,076 shares worth $508.8 million. 

Here is what Ensemble Capital specifically said about NVR, Inc. (NYSE:NVR) in its Q3 2022 investor letter:

“NVR, Inc. (NYSE:NVR): The US housing market has been unstable so far this year, as rising mortgage rates and higher housing prices have rapidly reduced affordability. Fortunately for existing homeowners, most of whom own their houses outright or have locked in low, fixed mortgage rates, rising rates have not directly impacted their finances unless they have an outstanding variable-rate home equity line of credit.

Homebuilders, who rely on incremental demand for housing, have seen demand dry up in response to declining affordability. Single-family home building permits have plummeted in recent months back to pre-pandemic levels.

That’s the bad news. On the bright side, the building materials supply chain, which delayed construction and increased the cost to build a home, is rapidly improving. This bodes well for homebuilders like NVR with a track record of cost discipline. In other words, even if NVR’s average selling price declines, it can maintain attractive gross margins if they simultaneously control costs…” (Click here to read the full text)

4. Vulcan Materials Company (NYSE:VMC)

Number of Hedge Fund Holders: 34

Vulcan Materials Company (NYSE:VMC) produces and supplies construction aggregates primarily in the United States. The company operates through four segments – Aggregates, Asphalt, Concrete, and Calcium. On November 2, Vulcan Materials Company (NYSE:VMC) reported a Q3 non-GAAP EPS of $1.78 and a revenue of $2.09 billion, ahead of Wall Street estimates by $0.07 and $80 million, respectively. 

On October 12, DA Davidson analyst Brent Thielman maintained a Buy rating on Vulcan Materials Company (NYSE:VMC) but trimmed the price target on the shares to $200 from $205. The analyst attributed his price target change to near-term volume slowness, but his discussions with some non-residential exposed contractor suppliers suggest that positive pipelines into 2023 “lend cautious optimism” for Vulcan Materials Company (NYSE:VMC).

Among the hedge funds tracked by Insider Monkey, 34 funds reported owning stakes worth $1.2 billion in Vulcan Materials Company (NYSE:VMC) at the end of June 2022, compared to 36 funds in the prior quarter worth $2 billion. Sharlyn C. Heslam’s Stockbridge Partners is the leading position holder in the company, with more than 2 million shares worth $286.4 million. 

ClearBridge Investments made the following comment about Vulcan Materials Company (NYSE:VMC) in its Q3 2022 investor letter:

“As always, we focus on companies with strong competitive moats, high margins and returns, recurring revenues, pricing power and growing dividends. Our emphasis on investing in companies with pricing power has enabled our portfolio companies, such as aggregates producer Vulcan Materials Company (NYSE:VMC), a top contributor in the third quarter, to admirably offset rising costs seen across the economy.”

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

Number of Hedge Fund Holders: 39

Next on our list of the best construction stocks is Martin Marietta Materials, Inc. (NYSE:MLM), a North Carolina-based natural resource-based building materials company. On November 10, Martin Marietta Materials, Inc. (NYSE:MLM) declared a $0.66 per share quarterly dividend, in line with previous. The dividend is distributable on December 30, to shareholders of record on December 1. 

On November 6, Raymond James analyst Patrick Tyler Brown maintained an Outperform rating on Martin Marietta Materials, Inc. (NYSE:MLM) but lowered the price target on the stock to $380 from $410 following the Q3 results. 

According to the second quarter database of Insider Monkey, 39 funds reported owning stakes in Martin Marietta Materials, Inc. (NYSE:MLM), compared to 35 funds in the last quarter. Select Equity Group is the largest stakeholder of the company, with approximately 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.”

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

Number of Hedge Fund Holders: 44

D.R. Horton, Inc. (NYSE:DHI) is a Texas-based homebuilding company engaged in the acquisition and development of land, construction, and sale of residential homes in the United States. On November 9, D.R. Horton, Inc. (NYSE:DHI) declared a $0.25 per share quarterly dividend, an 11.1% increase from its prior dividend of $0.225. The dividend is payable on December 12, to shareholders of record on December 2. 

On November 10, Raymond James analyst Buck Horne raised the price target on D.R. Horton, Inc. (NYSE:DHI) to $84 from $77 and kept an Outperform rating on the shares. Following the Q3 results, the analyst said that D.R. Horton, Inc. (NYSE:DHI) remains his preferred full-cycle investment idea across the homebuilding sector during this volatile market. 

According to Insider Monkey’s Q2 data, 44 hedge funds were long D.R. Horton, Inc. (NYSE:DHI), compared to 52 funds in the last quarter. John Armitage’s Egerton Capital Limited is the largest stakeholder of the company, with 7.6 million shares worth $504 million. 

Here is what Third Avenue Management specifically said about D.R. Horton, Inc. (NYSE:DHI) in its Q2 2022 investor letter:

“D.R. Horton, Inc. (NYSE:DHI) is the largest homebuilder in the US by volume (the company sold more than 90k homes in the past year) with a well-recognized focus on delivering quality product at the entry-level price point (its average selling price is less than $400k) and market-leading positions in key Sunbelt markets.

While the near-term outlook for DR Horton remains uncertain given the adjustments occurring in the US residential markets, the medium-to-long-term prospects for volume-based homebuilders with super-strong balance sheets and scale advantages continue to be promising in Fund Management’s view. More specifically, (i) residential inventories remain around record-low levels in most major markets when gauged by aggregate units available (see chart below), (ii) demand for single-family residences seem to have multiple secular drivers as the largest generation in US history (the “millennial cohort”) enters its prime home buying years and desires more space not only due to “life events” but also “remote” and “hybrid” working arrangements, and (iii) significant inflation in rental rates for multi-family units in urban areas has left the rent-to-own proposition for single-family homes in suburban areas in a compelling range (particularly in the Sunbelt region which is experiencing outsized job growth and wage growth relative to broader national figures).

In Fund Management’s view, the two industry participants that seem most likely to take part in this shift include DR Horton and Lennar Corp. (a long-held position in the Fund). In conjunction, these two “blue-chip builders” now account for approximately 10% of the Fund’s capital, as well as roughly one out of every five new homes built in the Sunbelt. They would also qualify under Third Avenue Founder Marty Whitman’s “Safe and Cheap” maxim as both companies are nearly “net-cash” (i.e., more cash than debt) with common stocks trading at less than five times trailing earnings, on average.”

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

Number of Hedge Fund Holders: 53

Builders FirstSource, Inc. (NYSE:BLDR) is a Texas-based company that manufactures and supplies building materials, manufactured components, and construction services in the United States. On November 8, Builders FirstSource, Inc. (NYSE:BLDR) reported a Q3 non-GAAP EPS of $5.20 and a revenue of $5.8 billion, outperforming market estimates by $1.90 and $500 million, respectively. The company ended Q3 2022 with a strong liquidity position of $1.3 billion. 

On November 11, Deutsche Bank analyst Joe Ahlersmeyer maintained a Buy recommendation on Builders FirstSource, Inc. (NYSE:BLDR) but slashed the price target on the shares to $72 from $85 following the Q3 results.

According to the second quarter database of Insider Monkey, 53 hedge funds were long Builders FirstSource, Inc. (NYSE:BLDR), compared to 57 funds in the prior quarter. Coliseum Capital held the biggest stake in the company, comprising 6.46 million shares worth $347 million.

Praetorian Capital made the following comment about Builders FirstSource, Inc. (NYSE:BLDR) in its Q3 2022 investor letter:

“Builders FirstSource, Inc. (NYSE:BLDR) produces and distributes building materials, primarily for the home building industry. It trades at a low-single digit cash flow multiple on recent earnings and is using that cash flow to rapidly repurchase shares. One could say that the low multiple is due to peak cyclical earnings. I take a different view and believe that we’re in the early stages of a long-term housing boom caused by migration to low tax states along with a catch-up phase as home construction rates were below trendline over the past decade. I believe that the US needs in excess of 1 million new single-family homes each year, just to provide for population growth, ignoring the other factors. As a result, this business does not appear to be at peak earnings; instead, I believe we are seeing a new baseline for earnings—though the earnings will be quite volatile—particularly if interest rates remain elevated or increase further.”

You can also take a look at 10 Best Stock Market Sleeper Stocks to Buy and 10 Best Railroad Stocks To Buy. 

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Disclosure: None. 12 Best Construction Stocks To Buy Now is originally published on Insider Monkey.