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5 Stocks to Buy From the Thriving Building Products Industry

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Shrabana Mukherjee
·8 min read
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Strong demand arising from solid momentum in the housing market and in repair and remodel (R&R) and "do-it-yourself" (DIY) activities will benefit companies under the Zacks Building Products - Miscellaneous industry. Apart from the stable end-market demand, benefits from geographic and product diversification strategies, operational excellence and accretive buyouts are expected to provide more strength.

Construction Partners, Inc. (ROAD), Quanex Building Products Corporation (NX), Gibraltar Industries Inc. (ROCK), Owens Corning (OC) and PGT Innovations, Inc. (PGTI) are set to benefit from increasing demand for housing/R&R activities.

Industry Description

The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers and distributors of home improvement and building products like ceiling systems, doors and windows as well as flooring and metal products. Some of the industry players provide solutions to rehabilitate aging infrastructure, primarily pipelines in the wastewater, water, energy, mining and refining industries.

A few industry participants offer glass fiber that is utilized to support composite materials for transportation, electronics, marine, infrastructure, wind energy as well as roofing for residential, commercial and industrial applications. The companies also manufacture expansion joints and structural bearings, ventilation products, ground mounted solar racking and commercial greenhouses as well as mail storage (solutions including mailboxes and package delivery products).

Companies in this industrial cohort also rent out equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities.

3 Trends Shaping the Future of the Building Products Industry

Robust Housing & Repair & Remodeling Markets: Solid near-term prospects of the housing market backed by rising need for more work-at-home space and record-low mortgage rates are acting as a major tailwind for industry participants. Precisely, strong demand stemming from an improved residential construction market has been a major boon for industry participants.

Meanwhile, the working from home or stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on more DIY and other home improvement projects. So, the industry stands to benefit from the sharp rise in repair and remodeling activity.

Operational Excellence, Product Innovation & Acquisitions: The industry participants have been following strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants like Masco Corporation (MAS) have also been strategically investing in new products, sales and support services, digitally-enabled solutions and advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth and expand access to additional markets and products.

Tariff-Related Woes & Softness in Industrial Market: Continued volatility in material costs, owing to tariff-related issues, has been a pressing concern. Also, rising labor costs are compressing margins further. Moreover, the challenging oil and gas market scenario has been affecting demand for the industry players’ services and products. Meanwhile, persistent softness in demand for core products in the industrial market is a cause of concern. Industrial activity has deteriorated more than construction given the domino effect of COVID-19 on different parts of the industrial economy.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Building Products – Miscellaneous industry is a 24-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #125, which places it at the top 49% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since September 2020, the industry’s earnings estimates for 2021 have been revised 8.5% upward.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Sector & S&P 500

The Zacks Building Products – Miscellaneous industry has outperformed the broader Zacks Construction sector and the Zacks S&P 500 composite over the past year.

Over this period, the industry has risen 29.4% compared with the S&P 500’s growth of 17.2% and the broader sector’s 20.4% rally.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing building products’ stocks, the industry trades at 17.9X versus the S&P 500’s 22.6X and the sector’s 16.7X.

Over the past five years, the industry has traded as high as 19.3X, as low as 7.1X and at the median of 13.7X, as the chart below shows.

Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500

5 Building Product Stocks to Keep a Close Eye On

Construction Partners, Inc.: Headquartered in Dothan, AL, this civil infrastructure company current sports a Zacks Rank #1 (Strong Buy). Organic and inorganic growth opportunities in the attractive southeastern U.S. road construction/repair market are expected to drive growth for the company. Overall, its competitive advantages — comprising vertically integrated operations, scale, strong position in hot mix asphalt production, a robust backlog, and strong growth via organic and acquisition strategies — are likely to aid the company in the near term.

Importantly, Construction Partners has seen upward estimate revisions for its fiscal 2021 earnings over the past 60 days by 9.5%. The stock has gained 64.4% in the past six months, performing better than the industry’s 18% rally. Earnings for fiscal 2021 are expected to grow 18%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: ROAD




Quanex Building Products Corporation: This Houston, TX-based company provides components for the fenestration industry worldwide. The company’s segments have been benefiting from above-market growth, price increases implemented at 2018-end and improvements in silicone cost for its spacer products. Quanex, a Zacks Rank #1 stock, has been recording higher margins in its three reportable segments, namely, NA Fenestration, EU Fenestration and NA Cabinet Components, reflecting solid pricing actions and lower SG&A.

Quanex has seen upward estimate revisions of 66.6% for its fiscal 2020 earnings over the past 60 days. The stock has gained 55.6% in the past six months. The company’s earnings for fiscal 2021 are expected to increase 11.3%.

Price and Consensus: NX





Gibraltar Industries Inc.: Buffalo, NY-based Gibraltar manufactures and distributes products to the industrial and buildings market. The Zacks Rank #2 (Buy) company has been benefiting from the three-pillar value creation strategy, strengthening housing market and strong Renewable Energy & Conservation business. Also, improvement in Residential Products, product and service mix, better price material cost management and operational excellence added to the positives.

This company has seen upward estimate revisions for its 2021 earnings over the past 30 days by 13.8%. The stock has gained 50.3% in the past six months. The company’s earnings for 2021 are expected to increase 26.1%.
Price and Consensus: ROCK




Owens Corning: Headquartered in Toledo, OH, this company produces and sells building materials systems and composite solutions. It has been benefiting from market-leading businesses, innovative product and process technologies as well as capabilities. Faster recovery in residential end markets, particularly in the United States, improved manufacturing leverage and strong cost controls will likely help it deliver solid results.

This Zacks Rank #2 company has seen upward estimate revisions for its 2021 earnings over the past 60 days by 4%. The stock has gained 27.4% in the past six months. The company’s earnings for 2021 are expected to increase 24.5%.

Price and Consensus: OC





PGT Innovations, Inc.: Based in North Venice, FL, this company makes and supplies impact-resistant residential windows and doors in the Southeastern United States, Western United States, the Gulf Coast, Coastal mid-Atlantic, the Caribbean, Central America, and Canada. Execution of strategic selling and marketing initiatives has been a key driver of sales in addition to recovering market demand for the company’s portfolio of products. Apart from registering robust sales, improved operational efficiencies in its Western business and continued emphasis on controlling costs are added positives.

This Zacks Rank #2 company has seen upward estimate revisions for its 2021 earnings over the past 30 days by 1.8%. The stock has gained 19.9% in the past six months. Earnings for 2021 are expected to grow 21.3%.

Price and Consensus: PGTI

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