The rise in interest rates and higher inflation have slowed the housing sector. It’s only a matter of time before the lack of consumer confidence hits the entire construction industry. This reality makes looking for the best construction stocks to buy a difficult task.
There are so many ways a person could go in their selection process. The two logical industries within construction would be publicly traded homebuilders and commercial construction firms such as Lennar (NYSE:LEN) and Aecom (NYSE:ACM).
Another way you could go would be to invest in construction technology. Companies that come to mind include Autodesk (NASDAQ:ADSK) and Procore Technologies (NYSE:PCOR).
Lastly, you could look for companies that provide materials and equipment for the construction industry.
To complete my three selections for the best construction stocks to buy now, I’ve gone with two of the three areas of interest within construction. I left out technology because both names could stand independently within a well-constructed technology portfolio.
|EXP||Eagle Materials Inc.||$114.07|
|NVEE||NV5 Global, Inc.||$122.17|
|LOMA||Loma Negra Compañía Industrial Argentina Sociedad Anónima||$4.83|
Best Construction Stocks: Eagle Materials (EXP)
Eagle Materials (NYSE:EXP) is my first of two producers of cement to make my list of three best construction stocks to buy now.
Based in Dallas, the company started in the 1960s as Centex Construction Products. In the ’70s, it acquired a few more cement plants. By the ’80s, it had gotten into gypsum and wallboard. In the 2000s, it continued to expand its gypsum and wallboard businesses.
Today, it’s a business with $1.9 billion in revenue and a net income of $374.2 million. Its revenue in fiscal 2022 (March year-end) increased 15%, while its net income rose 10% over 2021.
The company’s capital allocation focuses on acquisitions, investing in its business, and returning capital to shareholders. In the past three years, it’s allocated $700 million to acquisitions, $260 million for capital expenditures, and $956 million for share repurchases and dividends.
In fiscal 2022, Eagle generated $440 million in free cash flow (FCF). Based on $1.9 billion in annual revenue, it has an FCF margin of 23.2%. The stock’s current FCF yield is 10.4% [$440 million in FCF divided by a market capitalization of $4.23 billion]. I consider anything above 8% to be in value territory.
NV5 Global (NVEE)
NV5 Global (NASDAQ:NVEE) is a Florida-based provider of technology and consulting solutions in six specific verticals: testing, inspection and consulting, infrastructure support services, utility services, buildings and program management, environmental health sciences, and geospatial technology services.
Boy is that a mouthful. You’re not going to fit all that on a standard-sized business card.
The company initially went public in April 2013, selling 1.6 million units at $6 per unit. Each unit came with one common share and one warrant to purchase a second common share for $7.80. Assuming you bought 100 units in 2013 and are still holding today, your $1,380 investment [$6*100 + $7.80*100] for 200 shares is worth $23,096, a 35.6% compound annual growth rate.
And it could be just getting started.
In fiscal 2012, NV5 Global had $48.5 million in gross revenue. In Q1 2022, its gross revenues were $190.2 million, almost 4x higher than its entire year of revenue in 2012. For all of 2022, it expects revenues of between $785 million and $810 million with adjusted earnings per share of at least $5.39.
While NVEE stock isn’t in value territory – its FCF yield is 4.5% – it’s a reasonable price to pay for decent growth. Plus, its balance sheet is rock solid.
Best Construction Stocks: Loma Negra Compania Industrial Argentina (LOMA)
Loma Negra Compania Industrial Argentina (NYSE:LOMA) dates back to 1920, when Alfredo Fortabat discovered limestone, one of the key ingredients for cement. Based in Loma Negra, it was called the Loma Negra Company.
Today, Loma Negra produces cement, lime, masonry cement, and concrete and aggregates from facilities primarily around Buenos Aires. It has a 44% market share in Argentina.
Its share price fell by 57% on Aug. 12, 2019, after the populist Peronist party, led by Alberto Fernández, won a primary leading up to the election. Fernández has been in power since December 2019, but he’s been an unpopular president with voters. LOMA has traded in a tight range between $4 and $7.
The company is controlled by privately-owned InterCement Participações, a Brazilian cement producer, which in turn is owned by Brazilian industrial conglomerate MOVER Participações SA.
Unless the controlling shareholders decide to take it private, which might be difficult in light of global economic conditions, LOMA could continue to trade in this tight range.
CEO Sergio Faifman stated in the company’s Q1 2022 press release that business was strong in the first quarter. As a result, it continues to return capital to shareholders in the form of dividends and share repurchases.
LOMA currently trades at 1.1x sales and 0.9x book value, its lowest valuation for both metrics in the past five years. If you’re aggressive, it’s rarely been cheaper.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.