5 Best Construction Stocks To Buy Now

In this article, we discuss 5 best construction stocks to buy now. If you want to see more stocks in this selection, check out 12 Best Construction Stocks To Buy Now. 

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. 

Follow Insider Monkey on Twitter