In this article, we discuss the 7 best construction stocks to buy according to analysts along with the latest updates and outlook around the industry.
The recent 50 basis point rate cut has given a significant boost to the market and put a lot of industries into focus. The construction industry could also benefit significantly from the cuts as lower interest rates reduce borrowing costs, increase demand for real estate, encourage infrastructure investment, and boost consumer spending. This leads to more construction projects and supports overall growth in the sector.
According to a Research and Markets report, the U.S. construction industry is set to grow by 5.6% in 2024, reaching $1.27 trillion, with a projected annual growth rate of 4.7% through 2028, reaching $1.53 trillion. The growth is supported by government policies focused on infrastructure development and efforts to bring manufacturing back to the U.S. Despite some cost pressures, major projects such as data centers and infrastructure investments are expected to drive industry growth.
Population Shifts and Industry Trends Reshape U.S. Construction Outlook
According to FMI corporation’s 2024 North American Engineering and Construction Outlook: Third Quarter, U.S. construction in 2024 is expected to surpass $2 trillion for the first time, a 6% increase from 2023. However, growth is projected to slow to around 3-5% annually over the next five years.
In residential construction, a mixed trend is emerging, with single-family home construction projected to grow by 7%, while multifamily construction may decline by 25%. Non-residential construction is set for 6% growth, driven by public safety and manufacturing sectors, each seeing over 20% growth. Heavy civil sectors, like power and transportation, are expected to rise by 8%.
The report emphasizes the influence of population shifts on construction activity, especially as people move from states like California and New York to Texas and Florida, which could boost construction in those regions. Despite future slowing growth, FMI noted that the upcoming five years will still mark some of the highest levels of construction spending since 1965.
The report discusses how political backing for renewable energy, electric transportation, and power systems will persist, with grid planners projecting a 5% annual growth rate through 2028. Data center power needs are expected to triple by 2030, while the oil and gas sector continues to expand infrastructure.
Infrastructure spending will remain elevated, although growth may slow as Infrastructure Investment and Jobs Act (IIJA) funds taper off after 2026. Bridge investments are leading highway construction projects, and future political discussions may increase funding for infrastructure.
Moreover, the EPA has identified a $630 billion funding gap for wastewater infrastructure, and the U.S. will need $650 billion over 20 years to improve water systems, mainly for repairing distribution networks. Federal funding from the IIJA and programs under the Safe Drinking Water Act will help support these projects. Investments in dams and coastal protection are also growing, focusing on environmental protection and resilience.
With that, we look at the 7 Best Construction Stocks To Buy According to Analysts.
7 Best Construction Stocks To Buy According to Analysts
Our Methodology
For this article, we identified nearly 40 construction stocks through ETFs and stock screeners with a market cap of over $5 billion. We narrowed our list to 7 stocks with the highest average analyst price target, as of September 25. Finally, we also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Construction Stocks To Buy According to Analysts
7. Vulcan Materials Company (NYSE:VMC)
Average Analyst Price Target Upside: 12.16%
Number of Hedge Fund Holders: 40
Vulcan Materials Company (NYSE:VMC) is a US-based producer of construction aggregates and specializes in crushed stone, sand, and gravel. The company also has a significant role in the production of construction materials made from these aggregates, including asphalt and ready-mixed concrete. It is one of the best construction stocks to buy according to analysts.
According to the company’s 2023 10-K report, it has nearly 400 aggregate facilities, 66 asphalt facilities, 63 concrete facilities, and 1 calcium facility. The facilities are strategically positioned to serve significant growth centers across the US and ensure efficient distribution and supply of essential construction materials.
Its products are important for various construction needs, with more than half of its aggregates being used in infrastructure projects like roads and public works, while the rest supports commercial and residential construction.
Among 25 analysts, Vulcan’s (NYSE:VMC) average price target is $280, representing 12.16% upside from current levels on September 25. While several analysts reduced their price targets on the company after its Q2 earnings, most of them are optimistic about the company’s long-term growth.
On August 7, The Fly reported that Truist reduced its price target on the company from $320 to $300, but has maintained its Buy rating on the stock despite the company’s Q2 earnings falling short of expectations. According to the analyst, poor weather conditions negatively affected its volume, and the company’s revised guidance was the main factor behind the drop in stock price. However, the firm expects that in 2025, easier comparisons in terms of volume should lead to growth, which could potentially improve its performance next year.
On August 8, Citi analyst Anthony Pettinari decreased Vulcan Materials’ (NYSE:VMC) price target from $297 to $292 while continuing to maintain a Buy rating. Despite the company missing its Q2 earnings and reducing its fiscal year EBITDA outlook, Pettinari highlighted that its ability to maintain strong pricing remains unaffected. The pricing strength is a positive factor that investors should consider.
Baron Real Estate Fund stated the following regarding Vulcan Materials Company (NYSE:VMC) in its first quarter 2024 investor letter:
“We added to our position in Vulcan Materials Company (NYSE:VMC) during the most recent quarter. Vulcan is a real estate-related company that is the largest construction aggregates producer in the U.S. Vulcan generates approximately 90% of its gross profit from mining, processing, and transporting crushed stone, sand, and gravel (collectively, “aggregates”) from its quarries. The balance of its gross profit is derived from strategically located ready-mix concrete and asphalt. The company’s products are sold and utilized in infrastructure projects such as highways, as well as residential and non-residential construction. Vulcan has local leadership positions across its footprint.
We believe aggregates are an attractive business for two main reasons: • High barriers to entry limit new competition: Permits to open new quarries are difficult to obtain, and the approval process typically takes 5 to 10 years • Consistent pricing power through cycles: Aggregates producers have historically enjoyed great pricing power owing to the difficulty in opening competing new quarries, the limited substitutes for quality aggregates, and a high weight-to-price ratio that makes transportation expensive relative to the cost of the material. In the last 30 years, pricing of aggregates has increased, on average, 4% per year…” (Click here to read the full text)
6. Nucor Corporation (NYSE:NUE)
Average Analyst Price Target Upside: 16.13%
Number of Hedge Fund Holders: 40
Nucor Corporation (NYSE:NUE) is one of the most prominent players in the American steel industry and is the leading recycler of scrap metal across North America. The company has a diverse product portfolio that includes rebar, structural steel, carbon steel plates, and specialty steel for various industries, including automotive and construction.
Since its inception, the company has significantly expanded through strategic acquisitions and mergers. In June, the company announced the acquisition of Rytec Corporation, a leading manufacturer of high-speed commercial doors, in an all-cash deal valued at $565 million. This price reflects approximately 12.5 times Rytec’s projected EBITDA for 2024. Rytec specializes in high-speed spiral rolling doors for several applications, including warehouses and cold storage.
Leon Topalian, Nucor’s (NYSE:NUE) chair, president, and CEO, said that this acquisition aligns with the company’s strategy to diversify beyond core steel operations and expand into complementary downstream markets. He emphasized the potential for cross-selling with the company’s other businesses and the improvement of its product offerings in the commercial sector.
In April, the company announced the acquisition of Southwest Data Products, Inc. (SWDP) for $115 million. SWDP specializes in manufacturing and installing data center infrastructure. This is another one of the company’s acquisitions that supports its strategy to diversify beyond steel production.
In Q2, 40 hedge funds had stakes worth $520.506 million in Nucor (NYSE:NUE). Balyasny Asset Management owns 421,458 shares of the company, worth $66.62 million, and is the largest shareholder of the company, as of June 30.
It is one of the best construction stocks to buy according to analysts as 15 analysts have covered it with an average price target of $174, which shows an upside of 16.13%. On September 13, Seaport Global analyst Martin Englert reiterated a Buy rating for the company stock with a $170 price target.
