After a long rally since the October lows, the market experienced a pullback in April as the S&P 500 went on a downward trajectory between April 11 and 19, declining around 4.5%. However, analysts and experts had been expecting a correction in the market after such a strong performance by the S&P for several months. On April 24, Raymond James' chief market strategist, Matt Orton told CNBC that the earnings reports from US equities are quite positive and the firm sees a broadening in the market. The analyst is optimistic about the strength of the market and believes that cyclicals provide substantial opportunities for investors.
What Does It Mean for the Materials Sector?
While the recent pullback in the market might have scared a lot of investors, the recent earnings reports and expert analysis tell us that the economy is still robust and the markets have adjusted to the high interest rates. Since the materials sector is cyclical, it could benefit significantly from a strengthening economy. Materials Select Sector SPDR Fund (XLB) is almost on par with the broader market, showing gains of 4.3% year-to-date at the April 22 market close. The sector experienced a pullback similar to the S&P 500 but has shown positive signs this week and is up 0.71% between the April 22 market opening and almost an hour before the market opening on April 23.
The construction materials company, Martin Marietta Materials, Inc. (NYSE:MLM) is one of the top 10 holdings of Materials Select Sector SPDR Fund (XLB) by weightage and has shown significant outperformance compared to the broader market. The company was up 19% year-to-date at the April 22 market close and is up nearly 47% from its October lows. On April 15, Morgan Stanley raised the company stock’s price target to $672 from $595, maintaining an Overweight rating on the company shares. Morgan Stanley’s price target shows a 15% upside to Martin Marietta Materials, Inc.’s (NYSE:MLM) April 22 price of $584.32. At its latest earnings call, the company’s CEO, Ward Nye made the following comments:
“I’m pleased to report 2023 was the safest and most profitable year in Martin Marietta’s history. We delivered both record financial performance, eclipsing $2.1 billion in adjusted EBITDA and also world-class safety results, achieving a world-class total injury incident rate for the third year in a row and a world-class lost-time incident rate for the seventh consecutive year. This year was also highlighted by several portfolio enhancing transactions significantly strengthening both the durability of our business and our balance sheet and which cumulatively, positions us well to continue delivering sustainable growth. Our 2023 achievements were accomplished despite a macroeconomic environment encumbered by restrictive monetary policy, a housing slowdown, and heightened geopolitical tensions.”
Demand for New Homes: A Catalyst for the Construction Materials Sector
CEO of Howard Hughes Holdings Inc. (NYSE:HHH), David O’Reilly believes that the current year could be the "golden age of home building." On April 23, he told CNBC that the company is experiencing a huge surge in demand that substantially exceeds the supply due to a wave of new millennial purchasers entering the market. On top of that, wealthy retirees are spurring demand by wanting to move closer to their children and grandchildren. O'Reilly also mentioned the company's new Pheonix-based project, Teravalis, which is planned to be a 37,000-acre community. He said that Howard Hughes Holdings Inc. (NYSE:HHH) is planning to build over 100,000 new homes in the community in addition to 55 million square feet of commercial space.
If David O'Reilly's prediction for golden age of home building holds true, it could benefit companies like CEMEX, S.A.B. de C.V. (NYSE:CX) and Summit Materials, Inc. (NYSE:SUM). CEMEX, S.A.B. de C.V. (NYSE:CX) is a key player in construction materials in the US and Mexico with operations extending to Europe, the Middle East, Asia, Africa, and South and Central America. The company reported its first quarter 2024 earnings on April 25 with GAAP earnings per American depositary share of $0.17, up 13% year-over-year. CEMEX, S.A.B. de C.V.'s (NYSE:CX) revenue also grew 3% year-over-year to $4.14 billion. The company's CFO, Maher Al-Haffar made the following comments at its latest earnings call:
"Net income increased 13% due primarily to better operational results and lower taxes. We are quite pleased with achieving our investment-grade rating from S&P. This should translate into significant value for all of our stakeholders and is a testament to the success of our financial strategy. As we have said before, we intend not only to reach investment grade but to maintain investment-grade ratings through our business cycle. During the quarter, we executed a series of transactions that further strengthened our financial position. First, we reopened our sustainability linked long-term notes in Mexico in Mexican pesos for an equivalent amount of approximately $320 million and swap them into U.S. dollars."
Summit Materials, Inc. (NYSE:SUM) is a vertically integrated construction materials corporation operating in the US and Canada. In fiscal 2023, the company reported a revenue of $2.4 billion, up nearly 10% year-over-year, and its EPS increased by 5.7% from FY22 to $2.40. For fiscal 2024, the company expects an adjusted EBITDA of approximately $950 million to $1.010 billion compared to $578 million in 2023. At Summit Materials, Inc.'s (NYSE:SUM)Q4 earnings call, CEO Anne Noonan said:
"Summit stands at a very exciting and pivotal point in our Company’s history. Our team achieved record financial performance in 2023, accelerated our Elevate Summit strategy across all dimensions, and is embarking on integrating the Argos USA assets into the Summit family. Scott and I will take you through specifics here shortly, but we have a lot to be proud of, not the least of which is our emphasis on safety. The combined enterprise has a shared commitment to being an industry-leader in safety. We are investing in people, processes, and tools and as a result, we are putting the health and well-being of our employees and our communities at the forefront of everything we do."
With that said, some of the best construction materials stocks to invest in right now include, CRH plc (NYSE:CRH), Martin Marietta Materials, Inc. (NYSE:MLM), and Vulcan Materials Company (NYSE:VMC).
10 Best Construction Materials Stocks To Invest In Right Now
10 Best Construction Materials Stocks To Invest In Right Now
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify 16 construction materials stocks and then, narrowed down our list to 10 stocks that were most widely held by institutional investors as of the fourth quarter of 2023. The companies are listed in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
10 Best Construction Materials Stocks To Invest In Right Now
10. United States Lime & Minerals, Inc. (NASDAQ:USLM)
Number of Hedge Fund Holders: 9
United States Lime & Minerals, Inc. (NASDAQ:USLM) is engaged in the manufacturing and supplying of lime and limestone products to construction customers and industrial customers, among others. United States Lime & Minerals, Inc. (NASDAQ:USLM) is a subsidiary of Inberdon Enterprises Ltd.
Over the last twelve months, United States Lime & Minerals, Inc. (NASDAQ:USLM) has gained nearly 89%, as of April 22. Additionally, the company has recorded a trailing twelve-month EPS growth of 62.51%, and over the last 5 years, its EPS grew by 30%.
According to Insider Monkey’s database, 9 hedge funds held stakes in United States Lime & Minerals, Inc. (NASDAQ:USLM) in the fourth quarter of 2023, with positions worth $74.746 million. Chuck Royce’s Royce & Associates is the most dominant shareholder of the company with a position worth $32.464 million, as of December 31, 2023.
United States Lime & Minerals, Inc. (NASDAQ:USLM) joins CRH plc (NYSE:CRH), Martin Marietta Materials, Inc. (NYSE:MLM), and Vulcan Materials Company (NYSE:VMC) on our list of the best construction materials stocks to invest in right now.
Tecnoglass Inc. (NYSE:TGLS) is engaged in the manufacturing, supplying, and distributing of architectural glass, windows, and associated aluminum and vinyl products. The company offers its products and services under the Tecnoglass, ESWindows, and Alutions brands.
On April 9, B. Riley analyst Alex Rygiel raised the price target on Tecnoglass Inc. (NYSE:TGLS) to $65 from $51 and kept a Buy rating on the shares.
Tecnoglass Inc. (NYSE:TGLS) was part of 18 hedge funds’ portfolios in the fourth quarter of 2023 with a total stake value of $155.430 million. As of December 31, 2023, Polaris Capital Management is the top shareholder in the company and has a position worth $40.991 million.
Liberty Park Capital Management, LLC made the following comment about Tecnoglass Inc. (NYSE:TGLS) in its Q3 2023 investor letter:
“Tecnoglass Inc. (NYSE:TGLS) is a vertically integrated manufacturer, supplier, and installer of architectural glass, framing systems, windows, and doors. The company’s automated manufacturing base in Colombia allows it to manufacture products at a much lower cost than domestic companies. Shipping expenses are a low-single digit percentage of revenues because Tecnoglass transports products to the United States in containers that would otherwise return empty (there is a significant trade imbalance between the US and Colombia).
CEMEX, S.A.B. de C.V. (NYSE:CX) is involved in the production, distribution, and marketing of cement, ready-mix concrete, aggregates, and urbanization solutions. CEMEX, S.A.B. de C.V. (NYSE:CX) was part of 21 funds’ portfolios, and the total stake amounted to $510.555 million in the fourth quarter of 2023. With 13.989 million shares of the company, valued at $108.415 million, Oaktree Capital Management is the biggest shareholder of the company, as of December 31, 2023.
5 Wall Street analysts have covered CEMEX, S.A.B. de C.V. (NYSE:CX), and 4 keep a Buy-equivalent rating on the stock. As of April 22, the average price target of $9.25 implies an upside of 15.48% from the last price of $8.01. The company is one of the best construction materials stocks to invest in right now.
On March 13, based on CEMEX, S.A.B. de C.V.’s (NYSE:CX) “strong financial and operating performance, deleveraging strategy, and flexible capital allocation”, Standard & Poor’s reported that it upgraded the company’s long-term global scale issuer credit rating to Investment Grade (BBB-).
Summit Materials, Inc. (NYSE:SUM) is a supplier of concrete, aggregators, and other building materials. The company operates through 78 locations in 28 states and one Canadian province.
On April 10, Loop Capital raised the price target on Summit Materials, Inc. (NYSE:SUM) to $53 from $44 and maintained a Buy rating on the shares. The company takes the seventh spot on our list of best construction materials stocks to invest in right now.
23 hedge funds held positions in Summit Materials, Inc. (NYSE:SUM) worth $217.406 million in the fourth quarter of 2023. As of Q4 of 2023, Millennium Management is the most prominent shareholder of the company. The firm increased its stake in the company by 154% to 1.428 million shares worth $54.923 million.
“Summit Materials, Inc. (NYSE:SUM) is a vertically integrated construction materials company supplying aggregates, cement, ready-mix concrete and asphalt in the United States and British Columbia. The company’s stock performed well due to continued strong pricing and margin trends. Investors have also had time to digest a notable acquisition that was announced in the prior quarter, analyzing the value it could create for shareholders over time. Summit is well positioned to benefit from accelerating levels of infrastructure spending, and the recent move in interest rates could provide an additional boost for its more traditional construction markets going into 2024.”
Boise Cascade Company (NYSE:BCC) is involved in distributing building materials and manufacturing of wood products. The stock has gained 100.43% over the last year, as of April 22.
Hedge fund sentiment was positive toward Boise Cascade Company (NYSE:BCC) in the fourth quarter of 2023 as hedge funds with investments in the stock were 24 in the quarter, with positions worth $213.459 million. This is compared to 18 funds with positions worth $60.950 million in the preceding quarter. As of Q4 of 2023, Driehaus Capital is the largest shareholder in the company and has a position worth $32.248 million.
Boise Cascade Company (NYSE:BCC) is one of the best construction materials stocks to invest in right now, along with CRH plc (NYSE:CRH), Martin Marietta Materials, Inc. (NYSE:MLM), and Vulcan Materials Company (NYSE:VMC).
“During the fourth quarter, we eliminated two positions comprising approximately 6% of the portfolio where new information suggested that our investment thesis was wrong. As active managers, we are able to proactively make adjustments in the portfolio, a key difference from strategies that are rebalanced to a benchmark on a set frequency. Two new additions included a starter position in wood products maker Boise Cascade Company (NYSE:BCC) as well as the debt of Gray Television, a top operator of local television stations. We think Boise Cascade is a good business trading at a compelling valuation with a fortress balance sheet, while we believe markets are too pessimistic on Gray Television’s staying power.”
