14. CRH plc (NYSE:CRH)
Number of Hedge Fund Holders In Q2 2024: 75
Overweight Percentage: 0.12%
CRH plc (NYSE:CRH) is one of the biggest building and construction materials firms in the world. The firm sells a variety of products such as aggregates, beams, and pipes. Consequently, the stock is exposed to the condition of the broader industry, and CRH plc (NYSE:CRH) has struggled since 2022 when the Federal Reserve started an interest rate hiking cycle that eventually led to 24 year high rates in the US. Therefore, the stock’s sharp 24.6% decline in 2022 was unsurprising as investors rotated out of construction and materials stocks. However, this doesn’t mean that there aren’t any long term catalysts for CRH plc (NYSE:CRH). The US government has earmarked billions of dollars in spending for chip factories, infrastructure, and clean energy investments, and naturally, these will increase the demand for the firm’s products. CRH plc (NYSE:CRH) is quite well positioned to benefit from these tailwinds as 75% of its operating income is generated from North America. The firm is also diversifying its business and completed an acquisition of an Australian company in July. US aggregate prices have also performed well in some regions this year, with Montana experiencing a 22.4% increase in July. Depending on its ability to target states with high aggregate demand, CRH plc (NYSE:CRH) could unlock additional headwinds.
L1 Capital mentioned CRH plc (NYSE:CRH) in its Q2 2024 investor letter. Here is what the firm said:
“In our view, measuring the performance of investments over short time horizons such as three months is meaningless. While CRH and Eagle Materials detracted from the Fund’s returns this quarter, they were both leading positive contributors in the prior quarter. Since Inception of the Fund over 5 years ago, both companies have been top ten contributors to the Fund’s returns.
Recently, there has been some negative data that is causing a sell-off in the share price of CRH and Eagle Materials. Both these companies supply building products to the infrastructure, residential and commercial construction sectors. CRH has around 75% exposure to North America, with the remainder principally Europe (CRH has also recently acquired the majority of Adbri in Australia). Eagle Materials solely operates in the U.S.
Demand from the U.S. infrastructure sector is likely to remain robust for the medium term due to increased Federal and State spending, supported by the $1.2 trillion Infrastructure Investment and Jobs Act. Short term activity has been disrupted by bad weather – we think this is complete noise and is just slightly delaying projects, although CRH and Eagle Materials’ June 2024 quarterly results will likely be impacted.
Housing activity has recently softened a little, with affordability remaining an issue. Demand for housing remains strong, and the housing construction industry is responding through incentives such as subsidising mortgage rates for buyers, and building slightly smaller, cheaper homes.
While there will always be short term fluctuations in activity levels and we do expect softening in apartment construction, over time we expect solid new housing construction as well as repair and renovation activity levels to support demand for CRH and Eagle Materials’ products, with potential for meaningful upside in a lower interest rate environment. Commercial activity remains mixed, with pockets of strength such as data center construction and resilient areas such as hospital and education construction, offset by weakness in areas such as office construction.
In our view the market is not always efficient. Back in our December 2022 Quarterly Report we were pounding the table on Amazon.com (Amazon), stating that the share price had been oversold and offered compelling value. Since then, Amazon’s share price has increased nearly 140%. Over recent months, the share price of Eagle Materials and CRH have fallen 20% and 15% respectively from their recent highs. Now trading on a P/E ratio of 13x to 14x, we consider both companies are trading at attractive valuations for investors with a longer-term investment horizon, willing to look through short term pressures.”
