3 High-Growth Construction and Materials Stocks for 2016
Bloomberg News
Construction is all about the kind of foundation you build, and the same holds true for your portfolio. The sturdier your base, the higher your growth potential.
Below are three stocks that should get a substantial boost from the recovery in the construction sector.
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Fluor Corporation (FLR) - Get Report
Fluor provides professional services on a global basis in the engineering, procurement, construction and maintenance services sector.
Third-quarter earnings have been largely healthy -- the overall order backlog (read future revenue) is now higher at $41.7 billion. Over the past 12 months, the company has bought back over $850 million worth of stocks.
It's also increased its earnings-per-share (EPS) by reducing shares. With a $2 billion cash chest and a healthy $570 million operating cash flow in the year to-date period, Fluor is a stable stock.
Fluor's customers rely on the company for high-quality and necessary projects, especially those replacing depleting or deteriorating assets. For example, oil and gas customers need to extend production to revitalize the energy sector's declining production base as well as to meet new regulatory requirements.
After a 15% slip in top line this year, 2016 is expected to witness a marginal recovery at 2.4% growth in the company's sales. At a forward price to earnings of 13, Fluor is cheaper than most of its peers, and deserves a place on your portfolio.
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Martin Marietta Materials (MLM) - Get Report
As an aggregates producer, Martin Marietta is well-positioned to benefit from the recovering U.S. construction sector.
At a forward price to earnings of 21 times, this company promises growth. Fiscal 2015 has been stable so far for investors, with total returns of 40% (a 28% growth in EPS this year is about as good as it gets in this sector).
Fiscal 2016 should turn out even better, with estimates putting EPS growth at a solid 47%. This will lay the foundation for 16% growth per annum for the next five years, compared to a negative 1.8% per annum decline over the last five years.
Non-residential construction is expected to increase in both the heavy industrial and commercial sectors. The Dodge Momentum Index remains high and signals continued growth. Energy-related economic activity, including extended public and private construction activities in the company's primary markets, is anticipated to remain strong.
Residential construction should also expand, driven by historically low levels of construction over the previous several years, employment gains and low mortgage rates. Economic growth won't help certain weak stocks that are set to fall no matter what happens in the broader economy, but Martin Marietta faces a promising 2016 and beyond.
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Vulcan Materials Company (VMC) - Get Report
Vulcan Materials Company is the nation's largest producer of construction aggregates -- primarily crushed stone, sand and gravel -- and a major producer of aggregates-based construction materials.
The company's coast-to-coast footprint and strategic distribution network are its biggest strengths. At 28 times forward earnings, the price of this stock only reflects its growth-possibility.
The third quarter has been solid, with a 19% increase in total revenues converted to a 39% increase in gross profit. This also drove a 47% increase in adjusted EBIT, and a 31% increase in adjusted EBITDA. The company's diluted earnings per share from continuing operations increased 82%. Adjusted earnings per share from continuing operations were $0.95 per diluted share and an increase of $0.41 from the prior year. Gross profit margins increased by 490 basis points and were supported by the pricing momentum.
Vulcan continues to experience a gradual, steady recovery in demand and shipments. If you want a high growth business that thrives on economic recovery, this is your stock. It's well positioned to convert incremental revenues into gross profit at an impressive click.
With an estimated 75% EPS growth next year, which is triple the rate of the industry, the company is growing sales at about 15%. Fortify your portfolio with Vulcan and watch the stock continue to rise.
However, several vulnerable stocks in today's seesaw market will only keep falling. For a full report on the 29 most dangerous stocks in the world right now, click here. If you own any of them, get rid of them now before you get burned.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.