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4 Stocks to Buy on November's Construction Spending Rebound
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Spending on construction projects started slowing at the end of the second quarter as rising interest rates have made people cautious. This has hurt the homebuilding industry the most.
However, the final two months of 2022 showed signs of inflation slowing as prices cooled off. Also, spending on construction projects seems to be rising once again as spending on construction projects rebounded in November. This was primarily driven by a jump in spending on private non-residential structures.
Given this scenario, stocks like Eagle Materials Inc. (EXP - Free Report) , Dycom Industries, Inc. (DY - Free Report) , United Rentals, Inc. (URI - Free Report) and CRH plc (CRH - Free Report) are likely to benefit in the near term.
Construction Spending Rebounds
The U.S. Census Bureau said on Jan 3 that spending on construction projects increased 0.2% in November after declining 0.2% in October. Economists had projected an increase of 0.4%. However, the good sign is that spending has finally started rebounding after declining for two consecutive months.
On a year-over-year basis, construction spending jumped 8.5% in November. Spending on private construction projects increased 0.3% in November after falling 0.7% in the prior month. Spending on non-residential private projects like gas and well-drilling climbed 1.7%.
The housing market continues to suffer owing to sky-high interest rates. Investment in residential construction declined 0.5%, while single-family homes plummeted 2.9%. However, spending on multi-family housing projects jumped 2.4%, as demand for rental housing remained high.
As mortgage rates continue to rise owing to steep interest rate hikes imposed by the Fed in its attempt to contain skyrocketing inflation, the homebuilding industry has been suffering the most. However, inflation is easing as recent data shows that the personal consumption expenditures (PCE) index rose a modest 0.1% month over month in November and 4.7% on a year-over-year basis, after rising 5% in October.
This has given people the feeling that inflation might be easing. Also, despite indicating more rate hikes in 2023, the Fed has finally slowed its pace of rate hikes. The Fed increased interest rates by 50 basis points in December after four straight 75 basis point rate hikes.
A slower interest rate hike is expected to boost spending on construction activity, with the homebuilding industry benefiting the most.
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 currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Eagle Materials Inc. manufactures and distributes Cement, Concrete and Aggregates, Gypsum Wallboard, Recycled Paperboard, and Oil and Gas Proppants from more than 75 facilities across the United States. EXP manufactures and distributes concrete and aggregates products that are used in highway construction and maintenance and to construct residential and commercial buildings. Eagle Materials operates aggregates quarries and concrete plants in central Texas, northern California, Kansas and Missouri.
Eagle Materials’ expected earnings growth for the current year is 30.2%. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 90 days.
Dycom Industries, Inc. is a specialty contracting firm operating in the telecom industry. DY provides diverse services such as engineering, construction, maintenance and installation services for cable and telephone companies.
Dycom Industries’ expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days.
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 47.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days.
CRH plc manufactures cement, concrete products, aggregates, roofing, instulation and other building materials. Through its subsidiaries, CRH operates in Ireland, the United States, the United Kingdom, Spain, Germany and the Netherlands.
CRH plc’s expected earnings growth for the current year is 18.4%. The Zacks Consensus Estimate for current-year earnings has improved 12.9% over the past 60 days.
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4 Stocks to Buy on November's Construction Spending Rebound
Spending on construction projects started slowing at the end of the second quarter as rising interest rates have made people cautious. This has hurt the homebuilding industry the most.
However, the final two months of 2022 showed signs of inflation slowing as prices cooled off. Also, spending on construction projects seems to be rising once again as spending on construction projects rebounded in November. This was primarily driven by a jump in spending on private non-residential structures.
Given this scenario, stocks like Eagle Materials Inc. (EXP - Free Report) , Dycom Industries, Inc. (DY - Free Report) , United Rentals, Inc. (URI - Free Report) and CRH plc (CRH - Free Report) are likely to benefit in the near term.
Construction Spending Rebounds
The U.S. Census Bureau said on Jan 3 that spending on construction projects increased 0.2% in November after declining 0.2% in October. Economists had projected an increase of 0.4%. However, the good sign is that spending has finally started rebounding after declining for two consecutive months.
On a year-over-year basis, construction spending jumped 8.5% in November. Spending on private construction projects increased 0.3% in November after falling 0.7% in the prior month. Spending on non-residential private projects like gas and well-drilling climbed 1.7%.
The housing market continues to suffer owing to sky-high interest rates. Investment in residential construction declined 0.5%, while single-family homes plummeted 2.9%. However, spending on multi-family housing projects jumped 2.4%, as demand for rental housing remained high.
As mortgage rates continue to rise owing to steep interest rate hikes imposed by the Fed in its attempt to contain skyrocketing inflation, the homebuilding industry has been suffering the most. However, inflation is easing as recent data shows that the personal consumption expenditures (PCE) index rose a modest 0.1% month over month in November and 4.7% on a year-over-year basis, after rising 5% in October.
This has given people the feeling that inflation might be easing. Also, despite indicating more rate hikes in 2023, the Fed has finally slowed its pace of rate hikes. The Fed increased interest rates by 50 basis points in December after four straight 75 basis point rate hikes.
A slower interest rate hike is expected to boost spending on construction activity, with the homebuilding industry benefiting the most.
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 currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Eagle Materials Inc. manufactures and distributes Cement, Concrete and Aggregates, Gypsum Wallboard, Recycled Paperboard, and Oil and Gas Proppants from more than 75 facilities across the United States. EXP manufactures and distributes concrete and aggregates products that are used in highway construction and maintenance and to construct residential and commercial buildings. Eagle Materials operates aggregates quarries and concrete plants in central Texas, northern California, Kansas and Missouri.
Eagle Materials’ expected earnings growth for the current year is 30.2%. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 90 days.
Dycom Industries, Inc. is a specialty contracting firm operating in the telecom industry. DY provides diverse services such as engineering, construction, maintenance and installation services for cable and telephone companies.
Dycom Industries’ expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days.
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 47.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days.
CRH plc manufactures cement, concrete products, aggregates, roofing, instulation and other building materials. Through its subsidiaries, CRH operates in Ireland, the United States, the United Kingdom, Spain, Germany and the Netherlands.
CRH plc’s expected earnings growth for the current year is 18.4%. The Zacks Consensus Estimate for current-year earnings has improved 12.9% over the past 60 days.