No matter who wins the US presidential election on November 3, one of the immediate tasks of the new administration will be to cross the aisle to initiate increased federal spending on infrastructure projects. Individual states are also likely to put money into construction projects to bolster their economies and jobs.
Last week we looked at UK-based international Ashtead (LON :), (OTC 🙂 which could benefit from such a development in higher construction spend. Today we extend the discussion to another member, namely building materials manufacturer and distributor CRH (LON :), (NYSE :).
According to recent research by DataM Intelligence, between 2020 and 2027, "the global building materials market is expected to grow at a CAGR [of] 4.76%."
Another report highlights:
“The size of the European building materials market was registered at $ 85 billion in 2017 and is expected to exceed $ 125 billion by 2024. Between 2018-2024, the European building materials market is expected to register a CAGR of 5.5 .%. "
In addition to the US, other countries are also likely to increase their infrastructure spending to boost their economies in the post-pandemic world. Lower interest rates worldwide are likely to help boost industry revenues. These developments may help support the share prices of CRH and its peers.
With that information, this is why CRH, headquartered in Dublin, deserves to be on the radar of investors. months ending June 30. Sales were $ 12.2 billion (£ 9.42 billion), which means like-for-like sales declined 3% year on year in the first half.
The company reports revenues in three segments:
Americas Materials (comparable EBITDA up 20% year-over-year);
Europe Materials (Comparable EBITDA decreased 28% year-on-year);
Building Products (Comparable EBITDA decreased 11% year-on-year).
Its products and services include aggregates, asphalt, cement, ready-mixed concrete as well as paving and construction services.
CEO Albert Manifold was satisfied with the results and said:
"Our ability to bend our cost base and deliver improved profitability, margins and cash generation in a rapidly evolving environment demonstrates the strength and resilience of our business."
Management was unable to provide short-term guidance for the rest of the year. Understandably, an increase in the global economic contraction is a threat to industry and the company. The UK operations could also suffer from uncertainties related to a no-deal scenario in the ongoing trade talks between the UK and the European Union.
Nevertheless, analysts agree that CRH stocks could potentially benefit from stimulus measures in a range of countries. The board maintained the interim dividend. The current share price supports a dividend yield of 2.3%.
On October 13, CRH shares closed at 2,986p (about $ 38.75 in the US). So far in the year, the share has been roughly flat. However, since the multi-year lows in March, shares have more than doubled.
The forward P / E and P / B ratios are 13.53 and 1.15, respectively. Following the release of interim results, UBS reaffirmed its investment rating for the stock, raising the price target to 3,230p.
Bottom Line
CRH deserves to be on investors' shopping lists after the election. In addition to benefiting from a potential boom in government spending, the stock can also act as a proxy to play into the potential economic recovery in the rest of the world. We'd try to buy the dips, especially if the price drops to 2800p (or about $ 36 in the US).
Those investors interested in the industry's outlook may also want to research various other stocks or exchange-traded funds (ETFs). The list includes companies such as Cemex (NYSE :), Eagle Materials (NYSE :), James Hardie Industries (NYSE :), Martin Marietta Materials (NYSE 🙂 and Vulcan Materials (NYSE :).
Possible ETFs include the First Trust Global Engineering and Construction ETF (NYSE :), Invesco Dynamic Building & Construction ETF (NYSE :), and the SPDR® S&P Global Infrastructure ETF (NYSE :).
Finally, several ETFs also have CRH as a holding company, such as the Pacer Developed Markets International Cash Cows 100 ETF (BATS: ICOW). We plan to cover some of these funds in the future.
