9 Best Construction Stocks Now | 2022 Construction Stocks List

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9 Best Construction Stocks Now | 2022 Construction Stocks List


Updated on October 26th, 2021 by Bob Ciura

Construction stocks can be defined very widely to include materials companies, home builders, retailers, and more. Construction stocks are closely tied to the health of the broader economy, meaning investors expecting outsized economic growth could do well by buying the top construction stocks.

With this in mind, we created a list of 72 construction stocks, along with important financial metrics such as dividend yields and P/E ratios.

You can download the full spreadsheet of all construction stocks below:

 

In addition to the Excel spreadsheet above, this article covers our top 9 construction stocks today, as ranked using expected total returns from the Sure Analysis Research Database.

We believe the purest plays on construction relate to equipment and construction services companies and thus, these stocks offer the best way to take advantage of long-term fundamentals we find attractive.

Table of Contents

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Before we get to our list of stocks, let’s take a look at why we find the construction sector attractive.

Why We Like Construction Long-Term

First, rising global gross domestic product, or GDP, means that construction activities and services will be in demand over the long-term.

While growth slowed last year due to the coronavirus pandemic, we have seen global and US GDP very steady in the 2% to 3% range annually over the long run. This constant increase in economic activity means office buildings, retail, housing and other core infrastructure items are being built across the developed world.

In order for those things to happen, construction equipment and services are needed, and that is a key reason why we like construction stocks.

Complimentary to the growth of world GDP is the growth of the world’s population. Even in times of economic distress, the world’s population grows at fairly steady rates.

The US has seen lower population growth than the rest of the world, but population is still moving higher over time. This is a steady, long-term driver for demand for things like residential and shopping space, as well as roads, utilities and other infrastructure items that support the daily lives of the world’s population.

Combined, population and GDP growth create a powerful and steady long-term tailwind for construction stocks. In addition, the many underdeveloped countries around the world offer emerging growth markets for construction companies to capitalize on down the road. These economies tend to offer higher rates of growth than developed countries, albeit with higher risks.

Further, in the US, specifically, existing infrastructure has a poor rating. The American Society of Civil Engineers updates its infrastructure report card on a regular cadence and the most recent update for the US was a C-. That implies many billions of dollars of infrastructure investments and upgrades are needed just in the US over the long-term to fix things like roads and bridges.

Higher infrastructure spending will power revenue streams for construction companies, as well as the best infrastructure stocks. This is in addition to any growth-related spending that may arise in the coming years.

Below, we’ll take a look at ten companies that we think are well-positioned to take advantage of these trends in construction spending in the coming years, ranked in ascending order of projected total returns.

Construction Stock #9: The Sherwin-Williams Company (SHW)

Sherwin-Williams is North America’s largest manufacturer of paints and coatings. The company distributes its products through wholesalers as well as retail stores (including a chain of more than 4,900 company-operated stores and facilities) to 120 countries under the Sherwin-Williams name.

The company also manufactures Dutch Boy, Pratt & Lambert, Minwax, Thompson’s Waterseal, Krylon, Valspar (acquired in 2017), and other brands.

Source: Investor Presentation

The stock trades for more than 30 times earnings. We believe shares are significantly overvalued today. The combination of valuation changes, 8% annual EPS growth, and the 0.7% dividend yield result in expected annual returns of 0.5% per year.

Sherwin-Williams is one of the best DRIP stocks.

Click here to download our most recent Sure Analysis report on Sherwin-Williams (preview of page 1 of 3 shown below):


Construction Stock #8: Deere & Company (DE)

Our next stock, Deere, is a manufacturer of heavy equipment used in agriculture, forestry, turf care and construction.

Note: Deere & Company is also in our list of agriculture stocks.

We see Deere as accruing 2.9% total annual returns, powered by 2% earnings growth. The yield of ~1.1% adds to shareholder returns, but a declining P/E multiple will weigh on the stock.

Click here to download our most recent Sure Analysis report on Deere (preview of page 1 of 3 shown below):


Construction Stock #7: Caterpillar (CAT)

Caterpillar is a world leader in the manufacture and distribution of mining and construction equipment, diesel and natural gas engines, industrial gas turbines, and locomotives. The company generates about $55 billion in annual revenue.

Caterpillar is on the exclusive Dividend Aristocrats list.

We see 8% annual earnings-per-share growth in the coming years as Caterpillar continues to accrue benefits from booming construction and mining markets in the US, China, and other places around the globe.

Total returns are estimated at ~3.8% per year over the next five years.

Click here to download our most recent Sure Analysis report on Caterpillar (preview of page 1 of 3 shown below):

Construction Stock #6: Fluor Corporation (FLR)

Fluor Corporation produces about $18 billion in annual revenue. Fluor’s attractiveness begins with its very diverse base of clients. Fluor serves just about every major industry that needs construction engineering services and thus, during downturns, it is perhaps more insulated than other, more specialized firms.

During the Great Recession, Fluor’s revenue dipped only slightly in 2009 and 2010 before rebounding strongly in 2011 in excess of pre-Recession highs. Earnings actually rose during 2009 before taking a hit in 2010, but just like revenue, earnings rebounded much higher in 2011.

We expect 4% annual returns going forward, comprised mostly of 2% expected EPS growth, and a small boost from a rising P/E multiple.

Click here to download our most recent Sure Analysis report on Fluor (preview of page 1 of 3 shown below):

Construction Stock #5: Williams-Sonoma (WSM)

Williams-Sonoma is a home furnishings and houseware brands retailer with a $5.5 billion market capitalization. The company owns very popular brands such as its flagship Williams-Sonoma, but also owns Mark & Graham, Rejuvenation, Pottery Barn, and West Elm.

Williams-Sonoma’s omni-channel strategy sees it operating traditional physical stores, as well as catalogs and e-commerce sites.

In total, we see the ~1.5% dividend yield combining with 2% earnings-per-share growth and a very small tailwind from the valuation creating ~4.3% total annual returns in the coming years.

Click here to download our most recent Sure Analysis report on Williams-Sonoma (preview of page 1 of 3 shown below):

Construction Stock #4: Home Depot (HD)

The next company on our list of the best construction stocks is home improvement juggernaut Home Depot. The company has ~2,300 stores in North America that produce more than $100 billion in annual revenue.

Home Depot’s earnings growth has been nothing short of outstanding in the time since the Great Recession. The construction and housing growth that has taken place in the US and Canada in the past decade has been a very powerful tailwind for Home Depot, but it has done its part to take full advantage of it as well.

We expect 9% annual EPS growth. Shares are overvalued right now, which more than offsets the 1.7% dividend yield. As a result, total returns in the coming years are expected to reach 7% to 8% each year.

Click here to download our most recent Sure Analysis report on Home Depot (preview of page 1 of 3 shown below):

Construction Stock #3: Leggett & Platt (LEG)

Coming in at number three on our list of the best construction stocks is Leggett & Platt. The company is an engineered products manufacturer that competes in various niches, including furniture, bedding, store fixtures, industrial products, and more. It produces ~$5 billion in annual revenue.

Leggett & Platt is a member of the Dividend Aristocrats index thanks to its 49-year dividend increase streak.

We expect 7.8% annual returns over the next five years, as 5% expected EPS growth and the 3.5% dividend yield will be slightly offset by a declining P/E multiple.

Click here to download our most recent Sure Analysis report on Leggett & Platt (preview of page 1 of 3 shown below):

Construction Stock #2: Lowe’s Corporation (LOW)

Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). The company operates more than 2,200 home improvement and hardware stores in the U.S. and Canada.

With over 50 consecutive years of dividend increases, Lowe’s is on the exclusive Dividend Kings list.

Lowe’s reported second quarter results on August 18th. Total sales for the quarter came in at $27.6 billion compared to $27.3 billion in the same quarter a year ago. Comparable sales decreased 1.6% yearoveryear, while the U.S. home improvement comparable sales decreased 2.2%.

Source: Infographic

Based on expected EPS of $11.33 for the current fiscal year, Lowe’s stock trades for a P/E ratio of 18. Our fair value estimate is a P/E of 20. The combination of multiple expansion, 7% expected EPS growth and the 1.6% dividend yield lead to total expected returns of 10.6% per year through 2026.

Click here to download our most recent Sure Analysis report on LOW (preview of page 1 of 3 shown below):

Construction Stock #1: Whirlpool Corporation (WHR)

Whirlpool Corporation was founded in 1955 and today, is the leading major home appliance company in the US. It owns top tier brands such as Whirlpool, KitchenAid, Maytag, and JennAir. Whirlpool is geographically diversified as just about half of its revenue comes from North America. The company generates about $20 billion in annual revenue.

In total, Whirlpool should produce solid total annual returns of 9% in the coming years.

Click here to download our most recent Sure Analysis report on Whirlpool (WHR) (preview of page 1 of 3 shown below):

Final Thoughts

While construction stocks can be cyclical and sometimes volatile, they also offer investors access to long-term macroeconomic demand factors. The construction stocks listed here represent different ways for investors to capitalize on construction in various capacities, and are strategically aligned to long-term economic forces.

These companies should maintain profitability and dividend payments under all but the worst economic circumstances. Most offer decent returns, but some offer double-digit total return potential.

We rank Whirlpool, Lowe’s, and Leggett & Platt as the best construction stocks for investors looking to gain exposure to what should be a booming industry for decades to come (except during recessions, when investors must hold to take advantage of prosperous times). These are stocks one can buy and own for a very long time to come.

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