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4 Stocks to Buy on a Rise in September Construction Spending
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Spending on construction projects, rising until a few months back, has been declining. The homebuilding industry has been the biggest casualty of the Fed’s aggressive rate hike policy, which has seen a steady decline in spending on construction projects.
However, construction spending rose unexpectedly in September, indicating that inflation might be easing. The rise was primarily driven by spending on non-residential structures like mining and oil well drilling and government projects. Given this scenario, stocks like EMCOR Group, Inc. (EME - Free Report) , Granite Construction Incorporated (GVA - Free Report) , James Hardie Industries plc (JHX - Free Report) and United Rentals, Inc. (URI - Free Report) are likely to benefit in the near term.
Construction Spending Increases Despite Challenges
The U.S. Census Bureau said on Nov 1 that spending on construction projects rose 0.2% to a seasonally adjusted annual rate of $1,811.1 billion in September after declining 0.6% in August. Economists had expected construction spending to decline 0.5%.
Moreover, on a year-over-year basis, construction spending increased 10.9% in September. At the end of the third quarter, or the completion of the first nine months of the year, spending on construction projects totaled $1,353.7 billion, 11.4% higher than the same period last year.
Spending on private construction projects increased 0.4% in September after declining 0.7% in August. However, the homebuilding sector, which has been primarily driving spending on construction projects for months, continued its decline.
Spending on residential construction projects remained unchanged month over month in September, with spending on single-family homes declining 2.6%. Spending on multi-family housing projects rose 0.3% in September.
The homebuilding market has been suffering the most as mortgage rates continue to climb as a result of higher interest rates being imposed by the Fed in its fight to curb soaring inflation. However, economic data released last week showed hinted at easing inflation. The personal consumption expenditures (PCE) index rose 0.3% month over month in September and 6.2% on an annual basis, unchanged from August.
This has given people the feeling that inflation might be easing and the Fed might go slow on its aggressive monetary policy after its rate hike in November. The Fed is expected to increase interest rates by another 75 basis points after its two-day policy meeting, which begins on Nov 2. Investors believe this could be the last of major rate hikes by the Fed.
If the Fed goes slow on its next rate hikes, the homebuilding industry will likely benefit the most. That said, construction spending in September was driven by private non-residential structures like gas and oil well drilling, which increased 1%. Also, spending on state and local government construction projects gained 0.6%.
Our Choices
Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from the rise in construction spending. We narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EMCOR Group, Inc. is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses. EME serves commercial, industrial, utility and institutional clients.
EMCOR Group’s expected earnings growth for the current year is 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. EME currently has a Zacks Rank #2.
Granite Construction Incorporated is one of the nation's largest infrastructure contractors and construction materials producers. GVA specializes in complex infrastructure projects, including transportation, industrial and federal contracting, and is a proven leader in alternative procurement project delivery.
Granite Construction’s expected earnings growth for the current year is 46.7%. The Zacks Consensus Estimate for current-year earnings has improved 46.7% over the past 60 days. GVA presently has a Zacks Rank #2.
James Hardie Industries plc pioneered the development of fiber cement technology in the 1980s. JHX has many product applications, including external siding, trim and fascia, ceiling lining and flooring, partitioning, decorative columns, fencing and drainage pipes.
James Hardie Industries’ expected earnings growth for the current year is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. JHX currently has a Zacks Rank #1.
United Rentals, Inc. is the largest equipment rental company in the world, with an integrated network of 1,390 rental locations in the United States, Canada and Europe. URI operates in 49 states and every Canadian province. United Rentals offers 4,500 classes of equipment for rent at a total original equipment cost of $17.43 billion (as of September 2022).
United Rentals’ expected earnings growth for the current year is 46.9%. Shares of URI have gained 18.9% over the past 30 days. United Rentals currently has a Zacks Rank #2.
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4 Stocks to Buy on a Rise in September Construction Spending
Spending on construction projects, rising until a few months back, has been declining. The homebuilding industry has been the biggest casualty of the Fed’s aggressive rate hike policy, which has seen a steady decline in spending on construction projects.
However, construction spending rose unexpectedly in September, indicating that inflation might be easing. The rise was primarily driven by spending on non-residential structures like mining and oil well drilling and government projects. Given this scenario, stocks like EMCOR Group, Inc. (EME - Free Report) , Granite Construction Incorporated (GVA - Free Report) , James Hardie Industries plc (JHX - Free Report) and United Rentals, Inc. (URI - Free Report) are likely to benefit in the near term.
Construction Spending Increases Despite Challenges
The U.S. Census Bureau said on Nov 1 that spending on construction projects rose 0.2% to a seasonally adjusted annual rate of $1,811.1 billion in September after declining 0.6% in August. Economists had expected construction spending to decline 0.5%.
Moreover, on a year-over-year basis, construction spending increased 10.9% in September. At the end of the third quarter, or the completion of the first nine months of the year, spending on construction projects totaled $1,353.7 billion, 11.4% higher than the same period last year.
Spending on private construction projects increased 0.4% in September after declining 0.7% in August. However, the homebuilding sector, which has been primarily driving spending on construction projects for months, continued its decline.
Spending on residential construction projects remained unchanged month over month in September, with spending on single-family homes declining 2.6%. Spending on multi-family housing projects rose 0.3% in September.
The homebuilding market has been suffering the most as mortgage rates continue to climb as a result of higher interest rates being imposed by the Fed in its fight to curb soaring inflation. However, economic data released last week showed hinted at easing inflation. The personal consumption expenditures (PCE) index rose 0.3% month over month in September and 6.2% on an annual basis, unchanged from August.
This has given people the feeling that inflation might be easing and the Fed might go slow on its aggressive monetary policy after its rate hike in November. The Fed is expected to increase interest rates by another 75 basis points after its two-day policy meeting, which begins on Nov 2. Investors believe this could be the last of major rate hikes by the Fed.
If the Fed goes slow on its next rate hikes, the homebuilding industry will likely benefit the most. That said, construction spending in September was driven by private non-residential structures like gas and oil well drilling, which increased 1%. Also, spending on state and local government construction projects gained 0.6%.
Our Choices
Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from the rise in construction spending. We narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EMCOR Group, Inc. is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses. EME serves commercial, industrial, utility and institutional clients.
EMCOR Group’s expected earnings growth for the current year is 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. EME currently has a Zacks Rank #2.
Granite Construction Incorporated is one of the nation's largest infrastructure contractors and construction materials producers. GVA specializes in complex infrastructure projects, including transportation, industrial and federal contracting, and is a proven leader in alternative procurement project delivery.
Granite Construction’s expected earnings growth for the current year is 46.7%. The Zacks Consensus Estimate for current-year earnings has improved 46.7% over the past 60 days. GVA presently has a Zacks Rank #2.
James Hardie Industries plc pioneered the development of fiber cement technology in the 1980s. JHX has many product applications, including external siding, trim and fascia, ceiling lining and flooring, partitioning, decorative columns, fencing and drainage pipes.
James Hardie Industries’ expected earnings growth for the current year is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. JHX currently has a Zacks Rank #1.
United Rentals, Inc. is the largest equipment rental company in the world, with an integrated network of 1,390 rental locations in the United States, Canada and Europe. URI operates in 49 states and every Canadian province. United Rentals offers 4,500 classes of equipment for rent at a total original equipment cost of $17.43 billion (as of September 2022).
United Rentals’ expected earnings growth for the current year is 46.9%. Shares of URI have gained 18.9% over the past 30 days. United Rentals currently has a Zacks Rank #2.