11 Best Cement and Construction Materials Stocks To Buy Now

Published on October 24, 2022 at 10:33 am by Hamna Asim in Hedge Funds, News

In this article, we discuss 11 best cement and construction materials stocks to buy now. If you want to see more stocks in this selection, check out 5 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.”

Click to continue reading and see 5 Best Cement and Construction Materials Stocks To Buy Now.

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