In this article, we discuss 5 construction stocks that billionaires are buying. If you want to see more stocks in this selection, check out 10 Construction Stocks Billionaires Are Loading Up On.
5. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Billionaire Investors: 12
Dollar Value of Billionaire Holdings: $290,106,077
Number of Hedge Fund Holders: 51
Builders FirstSource, Inc. (NYSE:BLDR) is a Dallas, Texas-based company that operates as a supplier and manufacturer of building materials and offers construction services. It is one of the leading suppliers to the residential construction and remodelling markets in the US. The company has secured fifth place on our list of the best construction stocks billionaires are purchasing.
On May 24, Matthew Bouley at Barclays increased the target price for Builders FirstSource, Inc. (NYSE:BLDR) from $150 to $160 and maintained an Overweight rating on the stock. The analyst highlighted that even though the housing market may be facing challenges, the new construction segment is experiencing improvement and is in a much stronger position.
Here’s what Black Bear Value Partners said about Builders FirstSource, Inc. (NYSE:BLDR) in its Q4 2022 investor letter:
“Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials with a focus on residential construction. Historically this business was cyclical with minimal pricing power as the primary products sold were lumber and other non-value-add housing materials. Since the GFC, BLDR has focused on growing their value-add business that is now 40%+ of the topline. BLDR can pre-assemble components such as a roof truss and deliver it to the homesite. This allows homebuilders (their end-users) to shorten their construction time and have higher returns on capital. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 30% of the stock in the last 18 months.
While mortgage rates are higher, they are not unusual versus history. The low rates of the last 5-10 years are the outlier. We have a structural shortage of housing in the USA. With existing homeowners locked into low rate mortgages, the aspiring homeowner may increasingly need to find a home from a homebuilder. The next 6-12 months could be rocky as people adjust to the increase in pricing and rates. Eventually the housing market should adjust to the new normal (or rates could go down). We do have a large credit short which benefits if rates continue to go up.
Normalized free-cash-flow per share looks to be in the range of $8-$12 per year. At year end pricing of ~$65 that implies a free-cash-flow yield of 12-18%. If we owned this business privately and someone offered us a teens annual cash-flow yield, we would be jumping at it! The pessimism surrounding housing, interest rates and recession fears provides some of the reasons why this opportunity exists.”
4. The Home Depot, Inc. (NYSE:HD)
Number of Billionaire Investors: 12
Dollar Value of Billionaire Holdings: $709,345,601
Number of Hedge Fund Holders: 65
The Home Depot, Inc. (NYSE:HD) is an Atlanta, Georgia-based home improvement retailer founded in 1978. The company operates a chain of stores selling a wide range of home improvement and construction products.
The Home Depot, Inc. (NYSE:HD) is the biggest home improvement retailer in the world and has been paying dividends for more than 35 years. In a research report issued on May 19, Brian Nagel at Oppenheimer highlighted that the recent selloff had provided an attractive entry point for potential investors. The analyst assigned The Home Depot, Inc. (NYSE:HD) stock a target price of $350 along with an Outperform rating.
Madison Investments made the following comments on The Home Depot, Inc. (NYSE:HD) in its Q1 2023 investor letter:
“The Home Depot, Inc. (NYSE:HD) provided an update on reducing the environmental impact of its stores. Since 2010, the company has reduced U.S. store electricity use by 50% by implementing LED lighting across all of its stores, buying electricity from large-scale commercial solar farms, and installing rooftop solar farms. The company is now applying its experience to other parts of its operations, including reducing electricity use in its supply chain and water use in store irrigation. Home Depot was also recognized by the U.S. Environmental Protection Agency for being one of the nation’s largest green power users.”
3. Caterpillar Inc. (NYSE:CAT)
Number of Billionaire Investors: 12
Dollar Value of Billionaire Holdings: $2,369,287,903
Number of Hedge Fund Holders: 52
Caterpillar Inc. (NYSE:CAT) is an Irving, Texas-based manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and other related products. The company is known for its extensive range of machinery and solutions for the construction industry.
In a note issued to investors on May 9, David Raso at Evercore ISI assigned Caterpillar Inc. (NYSE:CAT) a target price of $263 and reiterated an Outperform rating on the stock. As of Q1 2023, 12 billionaires reported owning a stake worth over $2.3 billion in Caterpillar Inc. (NYSE:CAT).
Here’s what Diamond Hill Capital said about Caterpillar Inc. (NYSE:CAT) in its Q4 2022 investor letter:
“In the case of Caterpillar Inc. (NYSE:CAT), the company reported a better-than-expected Q3 as demand in mining, non-residential construction and energy remained healthy through the year even as recession fears grew. Caterpillar showed strong pricing power and operating efficiency in the face of supply chain constraints and labor shortages, which in turn contributed to better-than-expected share price performance.”
2. Vulcan Materials Company (NYSE:VMC)
Number of Billionaire Investors: 13
Dollar Value of Billionaire Holdings: $167,077,215
Number of Hedge Fund Holders: 49
Vulcan Materials Company (NYSE:VMC) is a Birmingham, Alabama-based company. It is considered one of the biggest producers of construction materials in the US and is also involved in the production and distribution of construction aggregates, primarily crushed stone, sand, and gravel.
On May 10, Brent Thielman at DA Davidson increased the price target on Vulcan Materials Company (NYSE:VMC) from $212 to $225 and maintained a Buy rating on the stock. The analyst noted that the company’s Q1 2023 results were better than expected despite facing the adverse impact of cold weather in the western part of the country. Thielman highlighted that the pricing momentum and pricing recovery are working in favour of Vulcan Materials Company (NYSE:VMC).
Billionaires are bullish on Vulcan Materials Company (NYSE:VMC) as it is considered one of the best construction stocks. As of Q1 2023, 13 billionaires reported owning a stake in Vulcan Materials Company (NYSE:VMC).
1. Lennar Corporation (NYSE:LEN)
Number of Billionaire Investors: 14
Dollar Value of Billionaire Holdings: $245,357,062
Number of Hedge Fund Holders: 51
Lennar Corporation (NYSE:LEN) is a Miami, Florida-based home construction and real estate development company that is considered one of the biggest residential construction companies in the US. The company operates in multiple states and is involved in various aspects of the homebuilding industry.
On May 24, Matthew Bouley at Barclays increased the target price for Lennar Corporation (NYSE:LEN) stock from $120 to $135 and maintained an Overweight rating. The analyst believes that Lennar Corporation (NYSE:LEN) has favourable growth prospects due to the depressed inventory of residential properties.
Here’s what Baron Funds said about Lennar Corporation (NYSE:LEN) in its Q4 2022 investor letter:
“In the fourth quarter of 2022, we increased the Fund’s exposure to residential-related companies by acquiring shares in two best-in-class homebuilders (Toll Brothers, Inc. and Lennar Corporation (NYSE:LEN)) and two best-in-class building products companies (Floor & Decor Holdings, Inc. and The Sherwin-Williams Company).
Lennar Corporation is the second-largest U.S. homebuilder with competitive scale advantages (including materials procurement and labor), an increasingly capital-light business model, a strong balance sheet, a strategic and forward-looking focus on technology investments, and an exceptional management team.
At its recent price, Lennar’s shares were valued at only 1.2 times our estimate of 2023 tangible book value of $77 – a large discount to its historical valuation range of 1.5 to 2.5 times tangible book value.
Despite the company’s strong and liquid balance sheet and a business strategy that generates tremendous cash flow, Lennar’s shares are valued at only 5 to 6 times cash flow versus a homebuilder such as NVR, Inc. which is valued at 15 times cash flow.”
Disclosure: None. You can also take a look at the 15 Most Undervalued Growth Stocks To Buy and the 11 Best AI ETFs to Invest In 2023.
