We recently compiled a list of the 10 Best Construction Stocks to Buy Now. In this article, we are going to take a look at where Knife River Corporation (NYSE:KNF) stands against the other construction stocks.
As per Cumming Group, which provides project and cost-management services, the construction industry kicked off 2025 with a healthy momentum, thanks to the robust fundamentals from 2024. The firm also mentioned that the Dodge Momentum Index (DMI), which helps measure non-residential building spending, demonstrated steady growth as it wrapped up 2024 with a healthy 10% increase, implying confidence in owners and developers. Overall, the commercial real estate sector continues to witness a significant evolution, mainly in office spaces, where work-from-home and hybrid work arrangements transformed occupancy trends.
Outlook for the Construction Sector
Amidst increased interest rates, uncertainty related to various tariffs, and price inflation impacting residential and commercial segments, Cumming Group opines that positive indicators are also emerging. The construction investment, mainly fueled by government spending, has been providing much-needed stability to the broader sector. Moving forward, the sector’s ongoing resilience and adaptability place it well for the year 2025, despite uncertainty regarding tariffs. Apart from this uncertainty, healthy employment numbers, and consistent government investment, together with potential interest rate relief, create a strong foundation for sustained growth.
As per PHCPPros, which covers aspects of the plumbing, heating, cooling, and piping industry, ConstructConnect’s 2025 forecast for a total construction spending increase of 8.5% is broad-based, with residential and non-residential building construction projected to expand by 12% and 8%, respectively.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Key Drivers Likely to Boost the Construction Sector
PHCPPros opines that the declining interest rates due to the US Fed’s focus on reducing Fed Funds Rate, an instrument indirectly influencing the private sector borrowing rates, is likely to be the primary driver of the growth. The reduced rates are expected to help reinvigorate non-residential construction activity and residential housing market activity. Notably, lower rates and the ensuing improvement in housing affordability can ease the gridlock in sales due to the combination of increased home prices and elevated interest rates.
Furthermore, the electrification of the economy is expected to fuel strong demand for power generation and power infrastructure projects. The growth of AI, higher EV adoption, and the increased dependency on electric appliances and devices are expected to stimulate the need for electric generation and infrastructure construction moving forward. These measures are expected to fuel the demand for megaprojects.
Our Methodology
To list the 10 Best Construction Stocks to Buy Now, we used a screener to shortlist companies catering to the broader construction sector. Next, we filtered out the ones that were popular among hedge funds. Finally, the stocks were arranged in ascending order of their hedge fund sentiments, as of Q4 2024.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A worker in a safety helmet and bright orange vest surveying a construction site from a crane.
Knife River Corporation (NYSE:KNF)
Number of Hedge Fund Holders: 27
Knife River Corporation (NYSE:KNF) provides aggregates- led construction materials and contracting services. Oppenheimer analyst Ian Zaffino remains optimistic about the company’s growth prospects. As per the analyst, the demand environment remains strong and Infrastructure Investment and Jobs Act spending is a tailwind in Knife River Corporation (NYSE:KNF)’s markets. If the initiatives to upgrade and expand infrastructure materialize, the company can see a significant increase in demand for their products and services.
Furthermore, the trend towards sustainable and environmentally friendly construction practices can present new avenues for the company. Furthermore, strategic acquisitions can offer a pathway to growth. Knife River Corporation (NYSE:KNF) can expand its product offerings, enter new markets, or achieve economies of scale, resulting in an improved competitive position. Also, DA Davidson is positive on its Strata acquisition. Knife River Corporation (NYSE:KNF) expects Strata to be accretive to its adj. EBITDA margin within the first year. Strata’s high-quality assets enable the company to expand its service territory and the acquisition can add high-quality, complementary assets. Apart from Strata, Knife River Corporation (NYSE:KNF)’s deal pipeline remains strong, and its healthy capital position provides it with significant capacity to pursue strategic growth opportunities.
Overall KNF ranks 6th on our list of the best construction stocks to buy. While we acknowledge the potential of KNF as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than KNF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
