Despite the supply shortages and higher transportation costs being caused by the Russia-Ukraine war, rising demand with the reopening of the global economy should drive the building materials industry’s growth. So, we think it could be wise to bet on oversold building materials stocks CRH (CRH) and CEMEX (CX), which are well-positioned to capitalize on strong pricing. Read on.
Although companies that produce building materials are being impacted by Russia’s invasion of Ukraine and its impact on supply shortages due to surging energy coststhe housing market remains red-hot on rising demand amid a low-mortgage-rate environment. In addition, President Biden’s infrastructure spending is expected to further boost the demand for building materials.
The prospects for the industry look bright around the globe. With the vaccination drive gradually containing the spread of the COVID-19 virus, there should be increasing activities in the infrastructure and residential segments. According to Research and Markets, the global building materials market is expected to grow at a 5.57% CAGR through 2026.
Given this backdrop, we think quality building material stocks CRH plc (CRH) and CEMEX, S.A.B. de C.V. (CX), which have experienced significant price declines lately, could be solid picks now.
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CRH plc (CRH)
Headquartered in Dublin, Ireland, CRH manufactures and distributes building materials through its subsidiaries. It operates in three segments: Americas Materials; Europe Materials; and Building Products. The company manufactures and supplies cement, lime, aggregates, precast, ready mixed concrete, and asphalt products.
On Feb.28, 2022, CRH announced that it had agreed to divest its Building Envelope business to KPS Capital Partners, LP, for an enterprise value of $3.80 billion. The decision to divest at an attractive valuation followed a comprehensive review of the business and demonstrates its active approach to portfolio management, efficient capital allocation, and creating a simpler and more focused group.
CRH’s sales increased 12% year-over-year to $31 billion for its fiscal year ended Dec.31, 2021. The company’s EBITDA grew 16% year-over-year to $5.35 billion, while its operating cash flow came in at $4.20 billion, representing a 7% year-over-year increase. Also, its EPS came in at $3.29, up 35% year-over-year.
The stock has declined 8.9% in price over the past month to close yesterday’s trading session at $45.05.
CRH’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has a B grade for Growth, Value, Stability, and Quality.
CRH is ranked #2 of 53 stocks within the B-rated Industrial – Building Materials industry. To see CRH’s ratings for Sentiment and Momentum, click here.
CEMEX, SAB de CV (CX)
Based in San Pedro Garza Garcia, Mexico, CX produces, markets, distributes, sells cement, ready-mix concrete, aggregates, and clinker worldwide. The company offers various complementary construction products, including asphalt products, concrete blocks, roof tiles, and concrete pipes.
On March 7, 2022, CX announced that following its successful restart of one kiln at its CPN cement plant located in northwest Mexico in 2021, it was reactivating the second CPN kiln. This investment should leverage CEMEX’s unparalleled regional trading network to meet growing cement demand throughout the western United States.
CX’s revenue increased 3% year-over-year to $3.62 billion for its fiscal fourth quarter, ended Dec. 31, 2021. The company’s operating EBITDA grew 3% year-over-year to $651 million, while its net income came in at $204.25 million, representing a 179% year-over-year increase. Also, its earnings from continued operations per ADS came in at $0.15, up 189% year-over-year.
Analysts expect CX’s EPS and revenue to increase 192.8% and 6%, respectively, year-over-year to $0.17 and $4.09 billion for the quarter ending June 30, 2022. Over the past month, the stock has declined 8% in price to close yesterday’s trading session at $5.18.
CX’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary rating system. In addition, it has a B grade for Value and Quality. To see the additional POWR Rating for CX (Growth, Stability, Sentiment, and Momentum), click here. It is ranked #21 in the Industrial – Building Materials industry.
CRH shares fell $0.03 (-0.07%) in premarket trading Friday. Year-to-date, CRH has declined -12.72%, versus a -7.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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