NEW YORK (TheStreet) -- Construction spending will rise 9% in 2015, compared to 5% in 2014, according to Dodge Data & Analytics, a provider of construction data. And that means building supplies will be in higher demand.
Spending on commercial construction is expected to increase 15%, compared to a 14% gain in 2014. Institutional construction spending is expected to grow 9%, moderately above the growth seen in 2014. Spending on single family housing building is projected to go up 15%, while multi-family housing is slated to grow at a lower rate of 9% in 2015. Manufacturing construction spending will settle at a modest 16% increase after a huge jump of 57% in 2014. Moreover, spending on public sector construction will bounce to a 5% increase after a decline of 9% in 2014.
It's not all bright spots, however. Utility construction will continue to slip 9% after overbuilding in 2011 and 2012, according to Dodge.
The industry is also expecting steady growth this year due to banks making more loans and bonds available for the construction market.
So, to take advantage, here are the best building products companies investors should be buying, according to TheStreet Ratings, TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which asset management and custody banks made the list. And when you're done, be sure to read about which biotech companies to buy now. Year-to-date returns are based on May 27, 2015, closing prices. The highest-rated stock appears last.
CSTE data by YCharts
3. Caesarstone Sdot-Yam Ltd. (CSTE)
Market Cap: $2.1 billion
Year-to-date return: 2%
Caesarstone Sdot-Yam Ltd. and its subsidiaries manufacture and sell engineered quartz surfaces under the Caesarstone brand in the United States, Australia, Canada, Israel, Europe, and internationally.
"We rate CAESARSTONE SDOT-YAM LTD (CSTE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 0.0%. Since the same quarter one year prior, revenues rose by 14.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.55% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CSTE should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- CAESARSTONE SDOT-YAM LTD has improved earnings per share by 24.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CAESARSTONE SDOT-YAM LTD increased its bottom line by earning $2.21 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.41 versus $2.21).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Building Products industry. The net income increased by 23.3% when compared to the same quarter one year prior, going from $13.27 million to $16.36 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Building Products industry and the overall market, CAESARSTONE SDOT-YAM LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: CSTE Ratings Report