Publicly Traded Concrete Companies, U.S. infrastructure is in need of an update, and it’s going to fuel demand for a lot of cement.
The American Society of Civil Engineers projects that the country needs $2.6 trillion over the next decade to repair failing bridges, crumbling roads, and aging dams. The society estimates that more than 40% of public roadways are in poor or mediocre condition, and 42% of U.S. bridges are at least 50 years old.
Investors have seen construction stocks and infrastructure stocks trade up and down in recent years following talk of action from Washington, D.C. Late last year, lawmakers agreed on a plan to spend an additional $550 billion on infrastructure projects over the next five years. Given the condition of some roads, there will be demand for construction materials for years to come.
It’s hard to predict which individual projects might get funded, but we know spending on construction and infrastructure is going up. For investors, cement stocks are a good way to negate project-specific uncertainty and take advantage of the trend because it’s a raw material that will be in demand, no matter what is prioritized.
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Nothing in this present market environment is a sure bet. But if you had to pick a sector that could sustain its positive momentum, you may want to consider concrete stocks. Favorable sentiment combined with potential political catalysts may result in a massive buildout.
First, the most conspicuous catalyst for concrete stocks is surging home prices across the nation. Due in large part to an inventory shortage problem that was in place well before the novel coronavirus upturned everything, the lack of housing steadily panicked buyers. Once we became acclimated (more or less) to the pandemic, buying activity swelled remarkably.
Over the foreseeable future, it seems that housing prices will continue to rise. I’ve read countless stories of homes in or near major metropolitan areas finding themselves in a bidding frenzy. Further, with the introduction of corporations buying homes for rental income purposes, this dynamic robs regular folks of attaining real estate ownership. It’s awfully cynical, but it’s possible that concrete stocks can benefit.
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Telluride Gravel, an Americas Materials company of CRH, performing full-depth road reconstruction and embankment slide repairs on Colorado State Highway 145 at Lizard Head Pass, Trout Lake, Colorado.
Most concrete producers had a strong start to the year due to much of the country experiencing unusually good weather in the first quarter. However, the second quarter included the second-wettest April-June period recorded in U.S. history, which slowed construction activities.
The high-profile Lafarge-Holcim merger, completed mid-2015, opened a spot on The Concrete Producer’s annual list of top producers, making way for Votorantim Cimentos, based in Brazil. Below is our 2015 list of top publicly traded companies, based on North American revenue.
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Acquisitions & Focus on Operating Efficiency: The industry participants follow a well chalked-out acquisition plan to enhance domestic and international portfolios. Meanwhile, companies are increasingly focusing on reducing controllable costs and maximizing operating efficiency across business lines to generate higher earnings and cash flow.
Coronavirus-Related Woes & Weakness in Non-Residential: The coronavirus pandemic-related disruptions will weigh on the companies’ near-term results. The biggest headwinds for the industry players are centered around governmental permitting and the impact these may have on project schedules.
In contrast to residential showing signs of a sharp recovery, non-residential construction indicators have remained weak through the first nine months of 2020, with commercial/industrial end markets being the primary reason for the continued weakness.
Shortage of Skilled Labors, Fluctuation in Input Prices & Weather Woes: The industry players are struggling with shortage of skilled laborers, rising wage costs and escalating material expenses. The companies use electricity, diesel fuel, liquid asphalt and other petroleum-based resources. Hence, supply-related woes and significant fluctuation in prices of these resources affect operating results. The businesses are also exposed to weather-related risks that affect production schedules and hence profitability. Excessive rainfall, flooding or severe drought jeopardize shipments and production. The first and fourth quarter are mostly affected by winter. Again, hurricanes in the Atlantic Ocean and Gulf Coast are the most active during these quarters. These impediments may continue to bump up costs and mar profits of industry participants.