The Zacks Building Products - Concrete & Aggregates industry consists of manufacturers, distributors and sellers of construction materials like aggregates, concrete, and other such items. The materials also include gypsum wallboard, recycled paperboard, concrete blocks, ready-mix concrete and oil and gas proppants.
Let’s take a look at the industry’s three major themes:
- The industry is poised to benefit from increased construction activity backed by robust construction spending. Spending on construction in the United States has ramped up lately on a steady increase in outlays on private as well as public construction projects. Public outlays of total U.S. construction spending totaled $62.2 billion in the first three months of 2019, reflecting an increase of 9.2% year over year. Meanwhile, total construction spending during the period was almost unchanged year over year. Precisely, the industry is poised to benefit from growth in public sector construction activity as well as strong pricing. Large transportation projects and increased contract work for highways have boosted demand. Recently, Trump agreed to pursue a $2-trillion infrastructure plan to upgrade the nation’s highways, railroads, bridges and broadband. This is expected to prove as a key catalyst for the industry.
- The industry participants strongly follow a well-chalked-out acquisition plan to enhance domestic and international portfolios. Meanwhile, companies are increasingly focusing on the pricing of products to offset higher input and freight expenses. The focus is also on reducing controllable costs and maximizing operating efficiency across business lines to generate higher earnings and cash flow.
- However, the industry players are plagued with shortage of skilled laborers, rising wage costs and increasing material and transportation expenses. The companies use electricity, diesel fuel, liquid asphalt and other petroleum-based resources. Hence, supply-related woes and significant fluctuation in prices of these resources affect operating results. The businesses are also exposed to weather-related risks that affect production schedules and hence profitability. Excessive rainfall, flooding or severe drought jeopardize shipments and production. The first and fourth quarters are mostly affected by winter. Again, hurricanes in the Atlantic Ocean and Gulf Coast are the most active during the third and fourth quarters. These impediments may continue to bump up costs and mar profits of the industry participants.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Building Products - Concrete & Aggregates industry is a 11-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #83, which places it at the top 32% 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.
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 Lags Sector & S&P 500
The Zacks Building Products - Concrete & Aggregates industry has lagged the broader Zacks Construction sector as well as the Zacks S&P 500 composite over the past year.
The stocks in this industry have collectively lost 13.1% versus the broader sector’s decline of 10.6%. Meanwhile, the S&P 500 has gained 4.3%.
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 - Concrete & Aggregates stocks, the industry is currently trading at 17.6X versus the S&P 500’s 16.5X and the sector’s 13.4X.
Over the past five years, the industry has traded as high as 52.9X, as low as 13.4X and at the median of 21.9X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Indeed, weather-related woes, higher labor, freight and material costs are eating into margins of the industry players. Nonetheless, a significant boost in infrastructural and construction spending should continue to favor the industry.
Below we present two stocks from the Zacks Building Products - Concrete & Aggregates space that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Investors might also prefer holding other stocks that have impressive growth prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vulcan Materials Company (VMC): This Birmingham, AL-based company produces and supplies construction aggregates, asphalt mix as well as ready-mixed concrete. The stock carries a Zacks Rank #2 and its current-year earnings estimates have moved upward 1.5% in the past 30 days. The company has an expected earnings growth rate of 19% for 2019.
Price and Consensus: VMC
Martin Marietta Materials, Inc. (MLM): This Raleigh, NC-based building materials supplier has an expected earnings growth rate of 13.8% for 2019. The stock carries a Zacks Rank #2 and its current-year earnings estimates have moved 3% up in the past 30 days.
Price and Consensus: MLM
Summit Materials, Inc. (SUM): This Denver, CO-based company has an expected earnings growth rate of 400% for 2019 and carries a Zacks Rank #3 (Hold). It has a three-five year expected earnings growth rate of 11%.
Price and Consensus: SUM
U.S. Concrete, Inc. (USCR): Based in Euless, TX, this company produces and sells ready-mixed concrete, aggregates, and concrete-related products and services. The stock carries a Zacks Rank #3 and its current-year earnings estimates have witnessed upward revision of 1.9% in the past 30 days. The company has an expected earnings growth rate of 44.6% for 2019.
Price and Consensus: USCR
Eagle Materials Inc. (EXP): Headquartered in Dallas, TX, this company produces and supplies heavy construction materials, light building materials, and materials for oil and natural gas extraction in the United States. The stock carries a Zacks Rank #3 and its current-year earnings estimates have risen 2.4% in the past 30 days. The company has an expected earnings growth rate of 10.7% for 2019.
Price and Consensus: EXP
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