Here's the TL;DR
- Cummins, Inc. designs, manufactures, sells, and services engines, electric and hybrid powertrains, and related components.
- Summit Materials produces and sells aggregates, cement, ready-mix concrete, and asphalt paving mix.
- Terex Corporation manufactures materials processing machinery and aerial work platforms.
- Arcosa, Inc. provides infrastructure-related products in the construction, engineered structure, and transportation markets in North America.
- Sterling Infrastructure, Inc. specializes in E-Infrastructure, Transportation, and Building Solutions, catering to data centers, highways, roads, bridges, airports, residential, and commercial construction.
Before we get started
The construction industry is seen as the cornerstone of the global economy. Its rise and fall are closely correlated to the health of the economy. Construction stocks have been around since the 19th century, and have mirrored the world's infrastructural demands, growing during economic booms and facing challenges in downturns.
Noteworthy shifts include the infrastructure boom in emerging markets during the late 20th century, the green building movement, and the integration of groundbreaking technologies like BIM and 3D printing. However, the 2008 financial crisis and the COVID-19 pandemic also posed significant challenges, but the industry's inherent resilience has always shone through.
Our criteria for selecting the best construction stocks relies heavily on a mixture of the following factors:
- Market Capitalization (must be over $1B)
- Wall St Analyst Ratings (e.g. Buy or Strong Buy ratings)
- Profitability and Growth
- Institutional Transactions
This data is sourced from sites such as (but not limited to) Public.com, TipRanks, HedgeFollow, Yahoo Finance, MarketWatch, Bloomberg, Seeking Alpha, Jika, and Stock Analysis.
Five Best Construction Stocks For Investors to Consider
Please note that investing in the stock market is volatile and your capital could be at risk. Ticker Nerd is not a registered financial services provider and all content is for information purposes only. This is our personal opinion, not financial advice. Always do your own research.
1: Cummins Inc. ($CMI)
Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components.
Cummins has also been actively involved in the development of technologies to reduce the environmental impact of its products, including investments in electric and hydrogen fuel cell technologies.
The company has also been focusing on leveraging data analytics and connectivity to improve the efficiency and reliability of its products.
At the time of writing, Cummins Inc. is a Fortune 500 company, with operations in more than 190 countries and territories worldwide.
Cummins Inc. Financial Performance
Cummins Inc. SWOT Analysis
|SWOT Analysis||Cummins Inc. (CMI)|
|Strengths||1. Comprehensive portfolio of power solutions with diverse business segments.|
2. Strong presence in both on-highway and off-highway markets.
3. Expansion into hydrogen production solutions and electrified power systems through the Accelera segment.
|Weaknesses||1. Dependency on specific markets might expose the company to cyclical downturns. |
2. Potential challenges in integrating newer technologies like hydrogen production.
3. Competition with other major players in the engine and powertrain systems sector.
|Opportunities||1. Growing demand for sustainable and clean energy solutions. |
2. Expansion opportunities in emerging markets.
3. Potential for further innovation in electrified power systems.
|Threats||1. Fluctuations in global oil and gas prices. |
2. Regulatory challenges related to emissions and environmental standards.
3. Intense competition from global manufacturers in the engine and powertrain sector.
2: Summit Materials Inc. ($SUM)
Summit Materials Inc. generates revenue from the production and sale of aggregates, cement, ready-mix concrete, and asphalt paving mix, which are key materials in the infrastructure and construction industries.
Their business model relies on supplying these high-demand materials to a variety of clients, including contractors, municipalities, and home builders. Summit Materials has a strategic network of locally managed facilities which means they have greater control over their supply chain. More control over their supply chain means better reliability for their customers.
Looking ahead, Summit Materials is steering towards sustainable and environmentally friendly practices, eyeing developments in green building materials. The company’s management team is also keen on expanding its geographical footprint through acquisitions, a strategy that has been a growth driver in the past.
Summit Materials Financial Performance
Summit Materials SWOT Analysis
|SWOT Analysis||Summit Materials Inc. ($SUM)|
|Strengths||1. The company is vertically integrated. This means it can produce more materials at a lower price and has more control over the production process.|
2. Strong presence in various regions in the US and British Columbia, Canada, catering to diverse markets including public infrastructure and residential sectors.
3. Positive revenue growth with a 5% increase in revenues to $1.16B during the first six months of 2023.
|Weaknesses||1. The company had a significant decrease in net income by 66% to $52.8M in the recent half-year period. |
2. The company's stock is currently trading below the analysts' target price which could point to a lack of investor confidence.
3. Limited global presence compared to some competitors in the construction materials sector.
|Opportunities||1. Expansion into new markets and diversification of product offerings. |
2. Leveraging the increasing demand for sustainable and clean energy solutions in the construction sector.
3. Potential to enhance profitability through innovation and operational efficiency.
|Threats||1. Fluctuations in global commodity prices, including oil and gas can impact the cost structure. |
2. Regulatory challenges and adherence to environmental standards.
3. Intense competition from other established players in the construction materials sector globally.
3: Terex Corporation ($TEX)
Terex Corporation manufactures materials processing machinery and aerial work platforms. The company operates primarily through two segments: Materials Processing (MP) and Aerial Work Platforms (AWP).
The MP segment is involved in the design, manufacturing, and servicing of various equipment including crushers, washing systems, and conveyors, while the AWP segment focuses on aerial work platform equipment and utility equipment, mainly marketed under the Terex and Genie brand names.
As of June 30, 2023, the company saw a 27% increase in revenues amounting to $2.64 billion, and a significant rise in net income from $126.4 million to $269.7 million, attributed to growth in both MP and AWP segments.
Since Terex Corporation operates in the heavy machinery and vehicles sector, it is competing with giants like Caterpillar Inc. and Deere & Company.
Terex Financial Performance
Terex SWOT Analysis
|SWOT Analysis||Terex Corporation (TEX)|
|Strengths||1. Comprehensive product range including materials processing machinery and aerial work platforms.|
2. Strong brand presence with products marketed under the Terex and Genie brand names.
3. Positive financial performance with revenues increasing by 27% to $2.64B for the six months ended 30 June 2023.
|Weaknesses||1. Potential challenges in managing diverse operations across two major segments: Materials Processing (MP) and Aerial Work Platforms (AWP).|
2. Dependency on specific markets and sectors for revenue.
3. Competition with other major players in the heavy machinery and vehicles sector.
|Opportunities||1. Growing demand for materials processing and specialty equipment in construction, maintenance, and manufacturing sectors.|
2. Expansion opportunities in emerging markets.
3. Potential for further innovation in aerial work platform equipment and utility equipment.
|Threats||1. Fluctuations in the construction and manufacturing industries affecting demand. 2. Regulatory challenges related to machinery standards and environmental concerns.|
3. Intense competition from global manufacturers in the heavy machinery and vehicles sector.
4: Arcosa ($ACA)
Arcosa Inc is a North American infrastructure-related products and solutions provider. The company operates through three segments: Construction Products, Engineered Structures, and Transportation Products.
The Construction Products segment offers natural and recycled aggregates, specialty materials, and construction site support equipment.
The Engineered Structures segment specializes in manufacturing steel structures for various infrastructure businesses, including utility structures for electricity transmission and distribution, wind towers, traffic structures, and telecommunication structures, along with distribution tanks.
The Transportation Products segment focuses on manufacturing inland barges, fiberglass barge covers, winches, marine hardware, and steel components for railcars and other transportation and industrial equipment.
Arcosa is up against companies including PotlatchDeltic (PCH), KB Home (KBH), Skyline Champion (SKY), Installed Building Products (IBP), M.D.C. (MDC) and Armstrong World Industries (AWI).
Arcosa Financial Performance
Arcosa SWOT Analysis
|SWOT Analysis||Arcosa, Inc. (ACA)|
|Strengths||1. Diverse business segments including Construction Products, Engineered Structures, and Transportation Products, catering to a wide range of infrastructure-related markets in North America. |
2. Strong performance in the Transportation Products Group and Construction Products Group with revenue increases of 35% and 10% respectively, as of June 30, 2023.
3. Solid financial strength with a current ratio of 2.3 and a low long-term debt to equity ratio of 23.3.
|Weaknesses||1. A slight decrease in revenues (less than 1%) to $1.13 billion for the six months ended June 30, 2023. |
2. A significant decrease in the Energy Equipment Group segment revenue by 20%.
3. The stock is trading below the analysts' target price, indicating potential undervaluation or lack of investor confidence.
|Opportunities||1. Leveraging the increasing demand for sustainable and clean energy solutions in the construction and transportation sectors. |
2. Expansion into new markets and diversification of product offerings, given its strong presence in various business segments.
3. Enhancing profitability through innovation and operational efficiency, capitalizing on a positive net income increase of 63% to $96.6 million.
|Threats||1. Arcosa’s customer base is concentrated in a small group of clients. Losing any of these clients could have significant impacts on revenue. |
2. The amount of orders Arcosa gets fluctuates dramatically between quarters. This can make forecasting future growth difficult.
3. A significant portion of the company's products and services cater to specific industries, which may be subject to cyclical downturns.
5: Sterling Infrastructure ($STRL)
Sterling Infrastructure specializes in three key segments: E-Infrastructure, Transportation, and Building Solutions.
The E-Infrastructure segment focuses on large-scale site development projects including data centers, e-commerce distribution centers, and more.
The Transportation segment handles infrastructure and rehabilitation projects for highways, roads, bridges, and other transportation systems, while the Building Solutions segment deals with residential and commercial concrete foundations and other concrete works.
As of June 30, 2023, the company reported a 12% increase in revenues to $925.9 million and a 29% rise in net income to $59.1 million, largely driven by growth in the E-Infrastructure solutions segment. The company surpassed earnings and sales estimates, recording a 37% and 6% earnings surprise respectively.
Sterling Infrastructure Financial Performance
Sterling Infrastructure SWOT Analysis
|SWOT Analysis||Sterling Infrastructure ($STRL)|
|Strengths||1. Specialization in three distinct segments: E-Infrastructure, Transportation, and Building Solutions, catering to a wide range of infrastructure-related projects in the US. |
2. Significant growth in revenues, with a 12% increase to $925.9M for the six months ended June 30, 2023, and a notable net income increase of 29% to $59.1M in the same period.
3. Strong performance across various segments, including a 16% increase in E-Infrastructure solutions and a 36% increase in the commercial segment.
|Weaknesses||1. The company has a relatively high long-term debt-to-equity ratio of 61.3, which might indicate a higher level of financial risk.|
2. The company is involved in large-scale infrastructure projects, which are often subject to delays and cost overruns.
3. A significant portion of its revenue comes from the E-Infrastructure solutions segment. Any downturn in this segment can adversely affect the company's overall performance.
|Opportunities||1. Expansion into new markets given the company's specialization in large-scale site development systems and services for various sectors including data centers, e-commerce distribution centers, and energy projects. |
2. Leveraging the increasing demand for infrastructure and rehabilitation projects, including highways, roads, bridges, and light rail systems.
3. Potential to enhance profitability through innovation and operational efficiency, capitalizing on the positive net income increase.
|Threats||1. A large number of projects being developed by Sterling Infrastructure relies on Federal infrastructure funding. If the US Government cuts funding projects this will impact the business.|
2. A recession or slow economic growth can lead to reduced infrastructure spending, affecting the company's revenue streams.
3. The infrastructure sector is highly competitive, with several large players dominating the market. Increased competition can lead to price wars and reduced profit margins.
Pros and cons of construction stocks
|✅ Continued growth in emerging markets will likely lead to increased demand for infrastructure projects.||❌ Construction stocks can be highly sensitive to economic downturns, making them volatile. High inflation, can cause the profitability to quickly decline.|
|✅ Integration of technologies like BIM and 3D printing can lead to more efficient and cost-effective construction processes. Ideally increasing profits.||❌ The industry is saturated with numerous players, leading to fierce competition and potentially thin profit margins.|
|✅ The Green Building Movement offers opportunities for companies that prioritize eco-friendly practices, attracting environmentally-conscious investors.||❌ Construction companies face stringent regulations which can impact project timelines and costs.|
|✅ Governments are focusing on infrastructure spending to boost economic recovery, benefiting the construction sector.||❌ Global events, like the pandemic, have shown the vulnerability of supply chains, which can delay projects and increase costs. Many factors these companies can’t control can have a major impact.|
|✅ Construction stocks can offer diversification for investors, as they span various sub-sectors like residential, commercial, and infrastructure. If you’re heavy on tech stocks consider “boring” construction stocks.||❌ The industry often grapples with labor shortages, leading to project delays and increased labor costs.|
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