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Top 5 Stocks to Buy From the Booming Building Products Industry
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Strong demand arising from solid momentum in the housing market, and repair and remodel (R&R) and "do-it-yourself" (DIY) activities will benefit companies under the Zacks Building Products - Miscellaneous industry. In addition to stable end-market demand, benefits from geographic and product diversification strategies, operational excellence as well as accretive buyouts are expected to provide more strength. Owens Corning (OC - Free Report) , Advanced Drainage Systems, Inc. (WMS - Free Report) , Quanex Building Products Corporation (NX - Free Report) , Masco Corporation (MAS - Free Report) and Otis Worldwide Corporation (OTIS - Free Report) 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 the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries. 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 along with 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 as well as 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 the industry participants. Precisely, strong demand stemming from an improved residential construction market has been a major boon for the industry participants.
Meanwhile, 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 carrying out 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 have also been strategically investing in new products, sales and support services, digitally-enabled solutions as well as 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: Persistent volatility in material costs, owing to tariff-related issues and supply chain disruptions, has been a pressing concern. Also, rising labor costs are compressing margins. Moreover, the challenging oil and gas market scenario has been affecting demand for the industry players’ services and products. Meanwhile, persistent softness in the 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 25-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #97, which places it at the top 39% 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 solid 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 March 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 2.3% and 2.7% upward, respectively.
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 S&P 500, Lags Sector
The Zacks Building Products – Miscellaneous industry has outperformed the Zacks S&P 500 composite but lagged the broader Zacks Construction sector over the past year.
Over this period, the industry has risen 44.3% compared with the S&P 500’s growth of 38.1% and broader sector’s 49.8% 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 17.6X versus the S&P 500’s 21.9X and the sector’s 15.5X.
Over the past five years, the industry has traded as high as 19.3X, as low as 7.1X and at a 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 Buy
We have selected five stocks from the Zacks universe of building products that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Owens Corning: Headquartered in Toledo, OH, this company produces and sells building material systems along with 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 #1 company has seen upward estimate revision of 1.9% for 2021 earnings over the past 30 days. The stock has gained 27.8% year to date compared with the industry’s 15.8% rally. The company’s earnings for 2021 are expected to increase 54.3%.
Price and Consensus: OC
Quanex Building Products Corporation: This Houston, TX-based company provides components for the fenestration industry worldwide. Its segments have been benefiting from above-market growth, price increases implemented at 2018-end and improvement in silicone cost for spacer products. Quanex, a Zacks Rank #2 stock, has been recording higher margins in the 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 revision of 18.5% for fiscal 2021 earnings over the past 30 days. The stock has gained 17.3% year to date. The company’s earnings for fiscal 2021 are expected to increase 39.5%.
Price and Consensus: NX
Advanced Drainage Systems: Headquartered in Hilliard, OH, this company provides innovative water management solutions in stormwater and on-site septic waste water industries. Despite a challenging operating environment, the material conversion strategy, complete water management solutions and focus on key sales programs have been driving growth. It has been experiencing strong demand in residential and agriculture end markets, as well as horizontal construction in the non-residential market.
Advanced Drainage Systems has seen upward estimate revision of 9.4% for fiscal 2022 earnings over the past 30 days. The stock has gained 26.4% year to date. The company’s earnings for fiscal 2022 are expected to increase 66%.
Price and Consensus: WMS
Masco: Headquartered in Taylor, MI, Masco manufactures, sells and installs home improvement and building products. The company has been gaining strength from strong segmental performance backed by robust U.S. housing market fundamentals, and repair & remodeling activities. Also, inorganic moves are adding to the bliss.
The stock has gained 7.1% year to date. Masco has seen upward estimate revision of 8% for 2021 earnings over the past 60 days. The company’s earnings for 2021 are expected to increase 17%.
Price and Consensus: MAS
Otis Worldwide: Based in Farmington, CT, this company manufactures, installs, and services elevators as well as escalators in the United States, China, and internationally. Higher new equipment orders, growth in every region, and increased organic sales and margin expansion in both segments are impressive. This solid momentum along with continued progress in strategies and strength in end markets led to upbeat expectation for 2021.
Importantly, Otis has seen upward estimate revision of 4.8% for 2021 earnings over the past 30 days. The stock has gained 19.6% year to date. Earnings for 2021 are expected to grow 13.5%.
Price and Consensus: OTIS
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
Top 5 Stocks to Buy From the Booming Building Products Industry
Strong demand arising from solid momentum in the housing market, and repair and remodel (R&R) and "do-it-yourself" (DIY) activities will benefit companies under the Zacks Building Products - Miscellaneous industry. In addition to stable end-market demand, benefits from geographic and product diversification strategies, operational excellence as well as accretive buyouts are expected to provide more strength. Owens Corning (OC - Free Report) , Advanced Drainage Systems, Inc. (WMS - Free Report) , Quanex Building Products Corporation (NX - Free Report) , Masco Corporation (MAS - Free Report) and Otis Worldwide Corporation (OTIS - Free Report) 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 the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries. 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 along with 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 as well as 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 the industry participants. Precisely, strong demand stemming from an improved residential construction market has been a major boon for the industry participants.
Meanwhile, 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 carrying out 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 have also been strategically investing in new products, sales and support services, digitally-enabled solutions as well as 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: Persistent volatility in material costs, owing to tariff-related issues and supply chain disruptions, has been a pressing concern. Also, rising labor costs are compressing margins. Moreover, the challenging oil and gas market scenario has been affecting demand for the industry players’ services and products. Meanwhile, persistent softness in the 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 25-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #97, which places it at the top 39% 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 solid 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 March 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 2.3% and 2.7% upward, respectively.
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 S&P 500, Lags Sector
The Zacks Building Products – Miscellaneous industry has outperformed the Zacks S&P 500 composite but lagged the broader Zacks Construction sector over the past year.
Over this period, the industry has risen 44.3% compared with the S&P 500’s growth of 38.1% and broader sector’s 49.8% 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 17.6X versus the S&P 500’s 21.9X and the sector’s 15.5X.
Over the past five years, the industry has traded as high as 19.3X, as low as 7.1X and at a 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 Buy
We have selected five stocks from the Zacks universe of building products that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Owens Corning: Headquartered in Toledo, OH, this company produces and sells building material systems along with 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 #1 company has seen upward estimate revision of 1.9% for 2021 earnings over the past 30 days. The stock has gained 27.8% year to date compared with the industry’s 15.8% rally. The company’s earnings for 2021 are expected to increase 54.3%.
Price and Consensus: OC
Quanex Building Products Corporation: This Houston, TX-based company provides components for the fenestration industry worldwide. Its segments have been benefiting from above-market growth, price increases implemented at 2018-end and improvement in silicone cost for spacer products. Quanex, a Zacks Rank #2 stock, has been recording higher margins in the 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 revision of 18.5% for fiscal 2021 earnings over the past 30 days. The stock has gained 17.3% year to date. The company’s earnings for fiscal 2021 are expected to increase 39.5%.
Price and Consensus: NX
Advanced Drainage Systems: Headquartered in Hilliard, OH, this company provides innovative water management solutions in stormwater and on-site septic waste water industries. Despite a challenging operating environment, the material conversion strategy, complete water management solutions and focus on key sales programs have been driving growth. It has been experiencing strong demand in residential and agriculture end markets, as well as horizontal construction in the non-residential market.
Advanced Drainage Systems has seen upward estimate revision of 9.4% for fiscal 2022 earnings over the past 30 days. The stock has gained 26.4% year to date. The company’s earnings for fiscal 2022 are expected to increase 66%.
Price and Consensus: WMS
Masco: Headquartered in Taylor, MI, Masco manufactures, sells and installs home improvement and building products. The company has been gaining strength from strong segmental performance backed by robust U.S. housing market fundamentals, and repair & remodeling activities. Also, inorganic moves are adding to the bliss.
The stock has gained 7.1% year to date. Masco has seen upward estimate revision of 8% for 2021 earnings over the past 60 days. The company’s earnings for 2021 are expected to increase 17%.
Price and Consensus: MAS
Otis Worldwide: Based in Farmington, CT, this company manufactures, installs, and services elevators as well as escalators in the United States, China, and internationally. Higher new equipment orders, growth in every region, and increased organic sales and margin expansion in both segments are impressive. This solid momentum along with continued progress in strategies and strength in end markets led to upbeat expectation for 2021.
Importantly, Otis has seen upward estimate revision of 4.8% for 2021 earnings over the past 30 days. The stock has gained 19.6% year to date. Earnings for 2021 are expected to grow 13.5%.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>