In this article, we will discuss the top 5 construction stocks to buy now. If you want to read our comprehensive analysis of these stocks and the construction industry, go directly to 10 Construction Stocks to Buy Now.
5. Vulcan Materials Company (NYSE:VMC)
Number of Hedge Fund Holders: 43
Vulcan Materials Company (NYSE:VMC) deals in the provision of construction aggregates, which includes sand, gravel, crushed stone, cement, asphalt and concrete products. It is the largest producer of construction aggregates in the United States. 43 hedge funds disclosed ownership of stakes in Vulcan Materials Company (NYSE:VMC) at the close of Q3 2021, the same number of hedge funds holding stakes in the company as the previous quarter. The company stands to become one of the front-running beneficiaries of the US government’s spending on infrastructure around the country, after the passing of the $1.2 trillion infrastructure bill.
On December 22, BofA analyst Michael Feniger reinstated coverage of Vulcan Materials Company (NYSE:VMC) with a ‘Buy’ rating and $233 price target, stating that he sees a “sustained growth period” for the company underpinned by “structural and cyclical” tailwinds. Despite the share price reaching recent highs, Feniger believes Vulcan Materials Company’s (NYSE:VMC) rising gross margin per ton, accelerating pricing, and multi-year visibility amid an “uncertain” macro backdrop are all praise-worthy indicators.
In February, Weitz Investment Management published its Q4 2021 investor letter, where the fund mentioned Vulcan Materials Company (NYSE:VMC). Here’s what it said:
“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. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 46
Caterpillar Inc. (NYSE:CAT) deals in the manufacturing and provision of construction and mining equipment, natural gas and diesel engines, industrial gas turbines and diesel-electric locomotives around the world. On February 3, Tigress Financial analyst Ivan Feinseth raised the firm’s price target on Caterpillar Inc. (NYSE:CAT) to $278 from $270 and maintained a ‘Buy’ rating on the shares. Feinseth holds that the post-pandemic recovery has led to pent-up demand in construction and an increase in commodity prices, leading to a surge in mining and construction spending. He sees these growth trends for mining equipment continue to accelerate in 2022.
As of the fourth quarter of 2021, Caterpillar Inc. (NYSE:CAT) posted earnings per share of $2.69, surpassing estimates by $0.43. The company raked in $13.80 billion in revenue for Q4, beating analysts’ forecasts by $558.88 million. Caterpillar Inc. (NYSE:CAT) also pays a healthy dividend yield of 2.21%, as of February 13.
46 hedge funds held positions worth $4.77 billion in Caterpillar Inc. (NYSE:CAT) at the end of the third quarter, down from 62 hedge funds in the previous quarter. Ken Fisher’s Fisher Asset Management was the leading shareholder of Caterpillar Inc. (NYSE:CAT) at the close of the fourth quarter, with around 7 million shares worth $1.44 billion.
3. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 51
D.R. Horton, Inc. (NYSE:DHI) is a homebuilding company based in the United States. With a market cap of $29.85 billion and a wide range of products and services, it is the largest homebuilder in the country. In 2021, D.R. Horton, Inc. (NYSE:DHI) saw its net income increase to $4.2 billion, a 76% increase year on year, while revenue saw a year-on-year jump of 37% to reach $27.8 billion. EPS for the fourth quarter of 2021 came in at $3.17, beating market estimates by $0.37. D.R. Horton, Inc. (NYSE:DHI) continues to dominate and grow its market share, with the main drivers for growth including diversification in products and geographic expansion.
Investors realize the upward trajectory enjoyed by construction companies such as D.R. Horton, Inc. (NYSE:DHI), as 51 hedge funds reported ownership of stakes in the company at the end of the third quarter of 2021, up from 45 in the quarter before.
On February 3, Barclays analyst Matthew Bouley maintained an ‘Overweight’ rating on D.R. Horton, Inc. (NYSE:DHI) stock, lowering the price target to $125 from $140. He holds that the company’s strength in production and the availability of inventory homes should result in an upward trend for the volume of sales and pricing power heading into the spring selling season, as demand outstrips supply in the home-construction industry.
2. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 53
Builders FirstSource, Inc. (NYSE:BLDR) is a Texas-based firm offering construction materials and services, and is the biggest supplier of home construction materials in the United States. 53 hedge funds were bullish on Builders FirstSource, Inc. (NYSE:BLDR) at the close of the third quarter, in comparison to 60 hedge funds reporting ownership of stakes in the company at the end of Q2 2021.
In early January, analyst Kurt Yinger of DA Davidson reiterated a ‘Buy’ rating on Builders FirstSource, Inc. (NYSE:BLDR) shares, and raised the price target to $100 from $93, attributing the upgrade to the firm’s acquisition of New England building material firm National Lumber, which he sees adding to the company’s “already leading national scale”.
Merion Road Capital Management is an investment management firm which talked about Builders FirstSource, Inc. (NYSE:BLDR) in its investor letter for the third quarter of 2021. Here’s what they said:
“I added to our position in Builder’s FirstSource (“BLDR”) during the quarter. BLDR is the largest national supplier of structural building products and value-added components to the residential construction market. They have been active in consolidating the industry, most notably with the merger of BMC earlier this year. Like other distributors, BLDR benefits from scale advantages that afford them a robust product offering, enhanced purchasing power, and fixed cost leverage. They will continue to acquire smaller competitors and have announced 5 new deals so far this year.
I view the strategic benefit of these acquisitions in three different buckets. There are the core tuck-in acquisitions of facilities and customer lists that increase scale and geographic reach. An example would be the company’s May acquisition of John’s Lumber, a lumber and specialty product distributor serving the Detroit MSA, at 0.5x revenue. There are product acquisitions that leverage their platform to increase distribution and improve the product offering. For instance, last month BLDR announced the acquisition of California TrusFrame, a designer and manufacturer of prefabricated components like trusses and wall panels, at 1.3x revenue. And lastly BLDR has begun investing in software and services. In June they spent $450mm on the purchase of WTS Paradigm, a software company that addresses the complexity around building configuration, estimating, and manufacturing, at 9.0x revenue. By utilizing software to in the planning process, WTS Paradigm cuts down on material and labor waste, ensures an optimal fit of product and design, and eases the contractor’s workload. BLDR has followed this up with a much smaller software acquisition in September.
BLDR is in the very early innings of their software investment, so it is difficult to pinpoint exactly how it will impact the company in the coming years. Management believes that there is a lot of low hanging fruit, pointing to a McKinsey study ranking the construction industry as second to last on overall digitization. If anyone has had any work done to their house, I am sure they can anecdotally attest to this. BLDR plans to leverage WTS Paradigm to increase internal productivity (i.e. improved estimating leading to fewer visits to the job site), cross-sell the software to existing clients, and drive greater adoption of value-added products. So thinking a few years out I think the goal would be to have higher margins on their commodity business, a greater mix of revenue coming from value added products, a stronger relationship with their customer, and an enhanced competitive advantage…” (Click here to see the full text)
1. Deere & Company (NYSE:DE)
Number of Hedge Fund Holders: 54
Deere & Company (NYSE:DE) offers equipment used in construction, roadbuilding, agriculture, forestry and turf care. Although agriculture equipment remains its biggest segment with $22.8 billion worth of sales in 2020, Deere & Company (NYSE:DE) boasts a strong sales history in its construction and forestry equipment segment, which garnered $9.2 billion in sales in 2020 and continues to grow as demand for construction equipment grows.
On February 10, DA Davidson analyst Michael Shlisky maintained a ‘Buy’ rating on Deere & Company (NYSE:DE) and upped the firm’s price target to $455 from $400. The analyst sees record agriculture produce profits in 2022, which will help growth for the company in this year and FY2023 as well. As of late, Deere & Company (NYSE:DE) has been growing its margins, and enhancing its footprint in automated and digital solutions. In January, Deere & Company (NYSE:DE) unveiled a fully autonomous tractor at CES 2022 consumer electronics show held in Las Vegas. The tractor will be ready for farmers to buy later this year, and will only need one-time configuration to operate autonomously on the field. Owing to this and other tailwinds for the construction sector in general, Deere & Company (NYSE:DE) has gained 24.87% in the last 12 months, and 14.52% year to date, according to figures as of February 13.
Investment management firm Harding Loevner talked about Deere & Company (NYSE:DE) in its Q2 2021 investor letter. Here’s what the fund said:
“In the US, where we increased our weight as part of our recent portfolio manager transition, two of our industrial holdings stood out (one is) John Deere. John Deere delivered stronger-than-expected quarterly earnings and raised its guidance for the full-year. Sales of Deere’s tractors and combine harvesters are underpinned by Chinese demand for agriculture products and the bioethanol market rebounding with oil prices.”
You can also take a peek at 15 Longest Pipelines in the US and Billionaire David Tepper’s Top 10 Stocks.
