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If you would like a little more exposure to the U.S. construction market before the busy season hits this summer, you may want to consider investing in concrete stocks.
This is a very basic way to gain exposure to residential and commercial construction. Mix together some aggregate (gravel or crushed rock), sand, Portland cement … add a little water and you have concrete. It doesn’t get much more basic than that.
I know that last week’s numbers for housing starts and building permits came in a bit under expectations. While U.S. home construction grew 2.8% in March to 946,000 (seasonally adjusted), that figure was short of consensus estimates of 965,000 units.
But one month of slower than expected growth doesn’t kill a trend. And when we look beyond home construction and include commercial construction spending, the trend is still up.
As the chart below shows, U.S. construction spending (including residential and commercial) has been growing 8% annually over the past three years. Of course, some markets are growing far faster.
If you believe, as I do, that the U.S. construction market will continue to recover over the next five years, having a little exposure to concrete stocks is almost a no-brainer. Concrete’s simple yet proven recipe has made it a must-have building material. Almost every building utilizes some form of concrete. The uses are only limited by the imagination.
On a ton for ton basis, concrete is the most widely used building material on the planet. Twice as much concrete is used as steel, wood, plastics and aluminum combined. The World Business Council for Sustainable Development states that concrete is the second most consumed product in the world. Water is the first.
I could go on, but you get the point. Concrete is a critical material in residential and commercial construction, which is an extremely large, and growing, segment of the U.S. economy.
The concrete industry generates roughly $30 billion in annual sales in the U.S. Most of that (65%) is spent on public works projects, while around 19% goes to residential projects. The remaining 16% is spent on commercial and industrial projects.
There aren’t that many pure-play concrete stocks. This is a fragmented market. There are around 2,000 ready-mix concrete producers in the country, operating roughly 5,500 ready-mix concrete plants.
The three names that are most commonly tossed around are Cemex (NYSE:CX), Vulcan Materials (NYSE:VMC) and Martin Marietta (NYSE:MLM), which have market caps of $14.6 billion, $8.3 billion and $5.8 billion, respectively.
All of these companies took a hit during the housing bust. That should come as no surprise as most housing-related companies did. But all three have clawed their way back, and are up between 50% and 100% over the past three years. And over the next two years, investors should expect annual revenue growth of around 6% to 11%, depending on the company.
Of the group MLM stands out due to its most reasonable forward PE of 23, and likelihood for 10% annual revenue growth and 45% annual earnings growth the next two years. I also like the smallish size, which could mean greater upside for investors if this trend continues to hold.
Is this happening in your neighborhood?
It feels like robbery. Local governments are broke. But instead of cutting spending, they’re forcing homeowners to pay up – raising property taxes when most of us are feeling the pinch. There used to be nothing you can do about it – until now! There’s a a special Federal program that allows you to completely pay off your real estate taxes through exclusive rebates. And they are available to any American. In fact, you can collect a Real Estate Tax Rebate this month! And every 30 DAYS after that! Click here to find out how to enroll.