Below we present the list of 5 Construction Stocks Hedge Funds Like as Spending Slumps. For our methodology and a more comprehensive list please see 10 Construction Stocks Hedge Funds Like as Spending Slumps.
5. Vulcan Materials Company (NYSE:VMC)
Number of Hedge Fund Shareholders: 36
Vulcan Materials Company (NYSE:VMC) was in a three-way tie for fifth on this list, but takes the #5 spot thanks its flat hedge fund sentiment quarter-over-quarter, while KBR, Inc. (NYSE:KBR) and Martin Marietta Materials, Inc. (NYSE:MLM) both had small ownership declines. Longer-term though, VMC’s ownership among hedge funds has also fallen quite a bit, dropping by 36% over the last three years.
Vulcan Materials Company (NYSE:VMC) had a mixed Q2 that saw sales surge by 43.6% year-over-year to $1.95 billion on the strength of its U.S. Concrete acquisition. Vulcan Materials achieved higher shipments across each of its product lines during the quarter, including a 339% year-over-year surge in concrete segment sales. However, adjusted EPS of $1.53 was down from a year ago and missed estimates, due in part to higher costs for fuel and parts.
The Weitz Investment Management Partners Value Fund is bullish on several facets of Vulcan Materials Company (NYSE:VMC)’s operations, saying this about the company 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.”
4. NVR, Inc. (NYSE:NVR)
Number of Hedge Fund Shareholders: 40
Hedge funds have been increasing their number of stakes in NVR, Inc. (NYSE:NVR) over each of the past three quarters, with ownership of the stock jumping by 38% during that time. Ric Dillon’s Diamond Hill Capital owns by far the largest stake in NVR among the funds tracked by our database, holding 124,583 shares, and believes the company is well positioned for long-term outperformance (more on that below).
Homebuilder and mortgage bank NVR, Inc. (NYSE:NVR) has never conducted a stock split, which is why its shares trade at nearly $4,400 and approached $6,000 at their 2021 peak. But with a new CEO incoming, it’s possible the company will finally look to make its shares more palatable to the average investor. One benefit of keeping your share count low is that it makes for some eye-popping earnings reports, as evidenced by the company’s Q2 EPS of $123.65, which still wasn’t enough to hit estimates.
Here is the Diamond Hill Large Cap Fund’s take on NVR, Inc. (NYSE:NVR), culled from the fund’s Q1 2022 investor letter:
“NVR is a homebuilder and mortgage bank. Its stock, along with other housing stocks, came under pressure in Q1 as mortgage rates rose and concerns that continued interest rate increases will cause a slowdown in new home demand. These near-term headwinds have not impacted our long-term investment thesis, and we believe NVR is well positioned to outperform over the long run.”
3. Quanta Services Inc (NYSE:PWR)
Number of Hedge Fund Shareholders: 46
Hedge fund ownership of Quanta Services Inc (NYSE:PWR) has jumped by 53% over the past eight quarters and currently sits near its all-time highs. Joe Dimenna’s ZWEIG DIMENNA PARTNERS built a new stake in PWR during Q1, consisting of 43,090 shares.
Quanta Services Inc (NYSE:PWR) provides infrastructure services for variety of industries and sectors in North America and Australia, including the energy, communications, and electric and gas spaces. Quanta is well positioned to take advantage of increased capital spending in the utilities industry, as those companies continue to develop and expand their 5G and broadband networks.
Quanta Services Inc (NYSE:PWR) pulled in $4.23 billion in revenue in Q2, topping $4 billion in quarterly revenue for the first time in its history. It also grew adjusted EPS by an impressive 45% to $1.54. PWR shares have gotten quite a bit more expensive by several metrics over the past few years, but with how well the company is executing, it’s hard to fault the valuations.
2. United Rentals, Inc. (NYSE:URI)
Number of Hedge Fund Shareholders: 47
Hedge fund ownership of United Rentals, Inc. (NYSE:URI) has risen by 27% over the past two quarters, making the company the second most popular construction stock among hedge funds. Billionaire Louis Bacon of Moore Global Investments built a new stake in URI during the first quarter.
It’s not hard to see why hedge funds like equipment rental company United Rentals, Inc. (NYSE:URI), as its successful playbook of generating strong free cash flow and using that to repurchase shares has proven to be a winner over the past decade, not to mention being the kind of strategy that hedge funds love to advocate. The company has bought back nearly 32% of its shares over the past decade, while driving diluted EPS growth 433% higher.
In its Q1 2022 investor letter, the Clearbridge Investments Mid Cap Growth Strategy cited United Rentals, Inc. (NYSE:URI)’s non-residential strength as one of the reasons why the company’s shares were a strong performer for the fund:
“More promising was the performance of several of the portfolio’s core compounding growth names. Construction equipment leasing company United Rentals (NYSE:URI) benefited from continued improvement of non-residential construction trends. The leading contributors to absolute returns during the first quarter included United Rentals.”
1. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Shareholders: 57
Topping the list of construction stocks hedge funds like is Caterpillar Inc. (NYSE:CAT), hedge fund ownership of which has risen by 19% over the past two quarters. Ken Fisher’s Fisher Asset Management and Michael Larson’s Bill & Melinda Gates Foundation Trust each own more than 7.2 million shares of CAT.
Caterpillar Inc. (NYSE:CAT) manufactures heavy equipment for several industries, with construction accounting for one of its three divisions. Supply chain challenges have impacted Caterpillar’s ability to meet demand and the demand for its equipment also appears to be slackening heading into the latter half of 2022. On the plus side, Caterpillar continues to drive its bottom-line growth thanks to strong pricing, and given its robust free cash flow and shareholder-friendly usage of it, it’s no wonder Caterpillar is hedge funds’ favorite construction stock.
The Diamond Hill Large Cap Concentrated Fund also discussed Caterpillar Inc. (NYSE:CAT) in its Q1 2022 investor letter, having this to say about the company:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
For more of the latest stock picks worth considering for your portfolio, check out 10 Stocks to Buy According to William Von Mueffling’s Cantillon Capital Management and 10 Important Energy Stocks Making Moves After Earnings.
Disclosure: None.
