According to Oxford Economics, global construction output is anticipated to experience a growth of 1.9% in 2023. The primary driving force behind this expansion is expected to be the Asia-Pacific region, which is predicted to observe a construction output growth of 6.4%. Meanwhile, the Americas and Europe are set to experience a contraction in construction output growth of 3.9% and 1.1%, respectively. Over the next 15 years, it is estimated that construction work worth $4.7 trillion will be performed, resulting in a total of $13.9 trillion in construction activity in 2037. This prediction assumes an average annual growth rate of 2.78% during the period.
The long-term expansion in the construction industry is expected to be driven by the growing economic activities in China, India, and the United States. However, in the short term, the construction industry in developed economies is facing a challenging outlook due to high levels of economic uncertainty. There is a strong probability of an economic recession due to high commodity prices and rising interest rates, which have adversely impacted the growth outlook for this year. The tighter monetary policy has limited the buying power of households, leading to a reduction in demand for new buildings for housing facilities. To combat inflation, the US Federal Reserve has raised benchmark interest rates ten times since March 2022. The increase in benchmark interest rates resulted in monthly mortgage payments observing a year-over-year (YoY) increase of 38% for a median-price new home in the US, assuming a down payment of 20%. The higher cost of a mortgage has resulted in the demand for mortgages plummeting to a 26-year low, according to the Mortgage Bankers Association. Experts believe that the residential construction market will remain depressed as the Federal Reserve is expected to increase benchmark interest rates further.
Opportunities for Growth
It is important to note that the construction industry does not face an entirely gloomy outlook. There is a significant backlog of construction work due to supply chain disruptions over the last year, presenting an opportunity for the industry to work on delayed projects and achieve growth. The conflict between Russia and Ukraine, along with the 2023 earthquakes in Turkey and Syria, is also expected to result in a reconstruction effort of $1 trillion in the next 15 years. In addition, the growing demand for data centres by leading technology companies like Alphabet Inc. (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:META) is driving large-scale construction projects. Furthermore, public investment in infrastructure projects is also expected to drive growth in the construction industry. Governments are trying to boost their economies following the COVID-19 lockdowns by taking major infrastructure initiatives. For instance, the Federal Highway Administration (FHWA) revealed in January 2023 that it intends to invest $2.1 trillion to improve the bridge infrastructure across the US. The rising investment is likely to present opportunities for construction companies, resulting in a positive impact on some of the best construction stocks such as Caterpillar Inc. (NYSE:CAT), Builders FirstSource, Inc. (NYSE:BLDR), and Lennar Corporation (NYSE:LEN).
The move towards sustainability has emerged as a key theme in the construction industry, driven by the global goal of achieving net-zero emissions by 2050. The Inflation Reduction Act (IRA) introduced by the US Federal Government in August 2022 intends to divert $500 billion in federal spending towards cutting down carbon emissions by executing projects that enhance the transition towards cleaner energy and promote sustainable construction. According to the International Energy Agency (IEA), the construction industry is responsible for using 36% of global energy and contributes 40% to the global carbon emissions. Major production facilities related to the construction industry still use conventional fuel sources for energy, and the global cement sub-industry is alone responsible for 8% of global carbon emissions. These figures emphasize the construction industry's significant role in carbon emissions and its potential for environmental improvement. The public sector, including government agencies and institutions, plays a vital role in driving sustainability initiatives within the construction industry. An example of this is the National Highways in the UK, which has announced that it intends to cut construction activity-related carbon emissions in half by the end of this decade.
10 Construction Stocks Billionaires Are Loading Up On
Photo by scott-blake on Unsplash
Our Methodology
We used Insider Monkey’s database of billionaire-owned stocks to shortlist the construction stocks that attracted the highest number of billionaire investors during Q1 2023. The best construction stocks have been ranked in ascending order of the number of billionaires holding a stake in them. We have also included information regarding the total number of hedge fund investors in these companies as of the first quarter of the year.
10 Construction Stocks Billionaires Are Loading Up On
Terex Corporation (NYSE:TEX) is a Westport, Connecticut-based manufacturer of machinery and equipment for the construction industry. The product range of the company includes cranes, aerial work platforms including boom lifts, scissor lifts, telehandlers, material handlers, and compact construction equipment.
On May 3, Stanley Elliot at Stifel increased the price target on Terex Corporation (NYSE:TEX) from $62 to $64 and reiterated a Buy rating on the stock following the company’s Q1 2023 results. The analyst appreciated Terex Corporation’s (NYSE:TEX) better-than-expected Q1 2022 results as they reflected strong plan execution by the company in a tough macroeconomic environment. Terex Corporation's (NYSE:TEX) strong business fundamentals make it one of the best construction stocks to purchase.
Dollar Value of Billionaire Holdings: $153,626,665
Number of Hedge Fund Holders: 47
Martin Marietta Materials, Inc. (NYSE:MLM) is a Raleigh, North Carolina-based company that specializes in the production and distribution of construction materials. It is one of the largest suppliers of aggregates, asphalt, ready-mixed concrete, and cement in the US. The company is at ninth position on our list of the best construction stocks attracting billionaires.
In a report issued to investors on May 10, an analyst at DA Davidson increased the price target on Martin Marietta Materials, Inc. (NYSE:MLM) from $450 to $465 and reiterated a Buy rating on the stock. The analyst highlighted that the Q1 2023 results were solid and shared that the organization has a constructive view of its end markets. The financial services firm anticipates significant momentum in the infrastructure-based construction markets.
“Martin Marietta Materials, Inc. (NYSE:MLM), a supplier of aggregates to the construction industry, edged forward by 5%. Its third quarter results were in line with Street estimates. Pricing for aggregates and cement were higher than expected while volumes were strong. While management lowered near-term guidance, they gave a positive outlook for 2023 with further aggregate pricing improvement and flattish volumes. Demand is projected to be higher in public infrastructure and commercial activities, though weak within the single-family residential segment.”
Dollar Value of Billionaire Holdings: $663,793,837
Number of Hedge Fund Holders: 33
PACCAR Inc (NASDAQ:PCAR) is a Bellevue, Washington-based company that focuses on the design, manufacture, and distribution of heavy-duty trucks, engines, and related parts for the construction industry.
In an investor update issued on May 9, David Raso at Evercore ISI highlighted that the broader weakness in the North American construction industry is more factored into PACCAR Inc (NASDAQ:PCAR) as opposed to its competitors. The analyst recommended going long on PACCAR Inc (NASDAQ:PCAR) as the company has strong business fundamentals, making it one of the best construction stocks.
“Heavy duty truck manufacturer PACCAR Inc (NASDAQ:PCAR) has quietly been one of our best performers over the past year. It, too, has surprised us to some extent, with the resiliency that it’s showing in a slowing trucking market. We think there’s a decent chance that weakness in its end markets will eventually catch up with PACCAR, but we believe the stock is cheap, and its steady parts business will act as a moderate stabilizer in such a scenario.”
As of Q1 2023, 33 hedge funds held a stake in PACCAR Inc (NASDAQ:PCAR).
ChampionX Corporation (NASDAQ:CHX) is a Sugar Land, Texas-based provider of speciality chemicals and services that offers solutions for water management and treatment relevant to oil and gas drilling sites. The company also provides industrial cleaning solutions applicable to certain construction sites.
Experts think ChampionX Corporation (NASDAQ:CHX) has been able to transfer the rising costs to the end customer, allowing it to protect its margins. Gates Capital Management was the biggest hedge fund investor in ChampionX Corporation (NASDAQ:CHX) as of Q1 2023, with a stake of $130.6 million.
Alger Capital made the following comments on one of the best construction stocks in its Q4 2022 investor letter:
“ChampionX Corporation (NASDAQ:CHX) provides equipment and services that assist in the drilling. completion and production phases of well drilling. The company also provides production and reservoir chemicals, along with highly engineered equipment and technologies, such as artificial lift and drill bit inserts, for the oil and gas industry. Notably, ChampionX has a global footprint and favorable product mix, where its chemicals and artificial lift businesses are tied to the production phase of the life of a well. We believe this produces lower earnings variability and potentially stronger operating results. Shares outperformed during the quarter as the company reported strong fiscal third quarter results and gave better-than-expected fourth quarter guidance. Moreover, the company expanded its capital return program by committing to return 60% of its free cash flow (FCF) to shareholders through opportunistic buybacks. Management also raised its share buyback authorization program from $250m to $750m over next 2 to 3 years. We believe the company is well positioned to deliver strong revenue growth, driven by their production focused Performance Chemicals business, which may lead to margin improvement and FCF generation.”
Dollar Value of Billionaire Holdings: $284,726,153
Number of Hedge Fund Holders: 37
Toll Brothers, Inc. (NYSE:TOL) is a Fort Washington, Pennsylvania-based company that has the distinction of being one of the biggest home construction companies in the US. The company specializes in building luxury homes and operates in multiple states across the country.
On May 31, Joe Ahlersmeyer at Deutsche Bank commenced coverage of Toll Brothers, Inc. (NYSE:TOL) stock with a Buy rating and a target price of $94. Ahlersmeyer initiated coverage on nine homebuilder stocks as investors question whether these stocks will experience a period of consolidation following their 40% to 80% rally from their lows in October 2022. The analyst believes that the demand outlook for the industry will continue to improve, making Toll Brothers, Inc. (NYSE:TOL) an appealing stock in terms of valuation.
Baron Funds shared its stance on Toll Brothers, Inc. (NYSE:TOL) in its Q4 2022 investor letter. Here’s what the firm said:
“Toll Brothers, Inc. (NYSE:TOL) is the leading luxury homebuilder in the U.S. with a capable management team as well as a large and valuable owned land portfolio. Toll Brothers is more insulated than its peers from elevated mortgage rates because 20% of the buyers of Toll homes pay 100% in cash.
In addition to Toll Brothers, Inc. (NYSE:TOL), Caterpillar Inc. (NYSE:CAT), Builders FirstSource, Inc. (NYSE:BLDR), and Lennar Corporation (NYSE:LEN) are among the best construction stocks billionaires are investing in as of Q1 2023.
