Garik Shmois, Managing Director, Senior Equity Analyst, Loop Capital Markets.
Kathryn Thompson, Partner, CEO, Thompson Research Group (TRG).
Construction stocks are hot in certain sectors according to these two award winning equity analysts.
Garik Shmois is Managing Director and Senior Equity Analyst at Loop Capital Markets.
He covers stocks within the construction materials and building products sector.
These include cement, aggregates, wallboard, roofing, cabinets, and plumbing manufacturers and distributors.
He was ranked as the No. 1 earnings estimator in coverage by StarMine/Financial Times (2014, 2017) and the No. 1 stockpicker (2012, 2014, 2017).
He has been interviewed by CNBC, The New York Times, The Wall Street Journal, and Bloomberg. Earlier, he worked at Longbow Securities and National City Bank.
He is a graduate of Binghamton University and received an MBA from Case Western Reserve University.
His stock picks lie at the intersection of the Trump and Biden Administrations:
“…the Infrastructure Investment and Jobs Act, IIJA, that was passed into law late in 2021.
It is funding that supports highway and street construction amongst other areas of infrastructure.
And it is dedicated through the program’s expiration at the end of September of 2026.
The Trump administration has stood behind IIJA.
And there’ve been other parts of the Biden administration’s agenda that have been supportive of construction spending that have been more at risk.
But for IIJA, there’s been no indication that the funding will be pulled.
And conversely, when IIJA funding runs out later next year, there’s actually been early signs of optimism amongst our contacts in D.C. that there will be a successor bill to IIJA that will be passed in relatively short order.
So that would support funding levels at or above actually current direct spending levels…
Within our coverage, we are positively disposed to the more infrastructure-focused companies.
And a lot of that comes back to the IIJA discussion that we’re having.
We have visibility to highway funding, which is the largest source of demand for our heavy materials coverage.
And because of that, and because most of our heavy materials coverage sees at least half of their demand coming through infrastructure, that provides a lot of volume visibility.
In addition, a lot of these companies are in very consolidated geographic markets, and this provides very strong pricing power.
And then lastly, a lot of these companies are not exposed to tariffs.
So, they’ve been able to see very strong margin expansion because inflation has not been as material as in other areas we follow.”
The specific stocks deal in heavy construction materials.
“I’ll give you one heavy materials and one building products name that we like.
On the heavy material side, it’s CRH (NYSE:CRH).
They are the largest aggregates company in the U.S. and they are vertically integrated, which provides them with leading positions in cement, ready-mix concrete, asphalt and paving.
Their vertical integration allows them stronger margins across their businesses.
We like them because as the largest aggregates producer, they are overexposed to infrastructure, which we’re bullish on right now.
They’re also very active in M&A, and on an annual basis, they make significant acquisitions that help with external growth.
The shares are also trading at a discount to peers.
And there could be an external catalyst on the horizon as we expect them, at some point, tough to predict when, but at some point we expect them to be included in the S&P 500, which often leads to a re-rating.
On the building product side, Owens Corning (NYSE:OC), a roofing insulation manufacturer, has housing exposure.
But it’s a cheap stock, and there’s some concern about the housing cycle.
However, the company is well positioned because they’re gaining share in roofing, their largest segment, and that is offsetting new-construction weakness.
And when the housing cycle does come back, they’re very well positioned within doors and insulation.
So, we think the shares should trade at a higher valuation because their execution over the last several years has been very strong.
Their margin performance is very similar to high multiple peers.
And we think the valuation should expand.
Many of their peers trade at a 3- to 5-turn valuation premium to Owens Corning with very similar if not worse performance.”
Kathryn Thompson is a founding Partner and Chief Executive Officer of Thompson Research Group (TRG).
TRG is an equity research and advisory firm focused on the industrial and construction sectors.
In addition to managing and setting the strategic direction of the firm, she also serves as Director of Research.
Ms. Thompson brings over 20 years’ experience analyzing, modeling and advising mutual funds, hedge funds, pension funds, private equity funds and family offices on investment and portfolio management.
She also works closely with key public and private companies, acting as a trusted advisor for strategic planning and growth initiatives.
Ms. Thompson has been recognized by The Financial Times/Starmine as a top Stock Picker in Construction Materials.
A graduate of the University of the South in Sewanee and Vanderbilt University’s Owen Graduate School of Management, Ms. Thompson is a regular guest speaker at industry trade conferences and corporate meetings.
She has been a guest on CNBC and Bloomberg, and is quoted regularly by The Wall Street Journal, Barron’s, Forbes, Fortune, and Bloomberg.
Kathryn Thompson believes that the AI boom will support the equity valuations of key construction pre-cursors to data center builds.
“You’ve got to pick your spots. APi certainly has done quite well.
But perhaps a different company that’s also in inspection services, that is a newer publicly traded company and that has a reasonable valuation now, is a company called Acuren (NYSE: TIC).
Acuren just completed its acquisition of another public company, NV5.
Combined, Acuren and NV5’s services support key AI/data center complexes and value chain — energy and water infrastructure — continuity.
NV5 brings exposure to building solutions, geospatial and infrastructure customers, with significant increased exposure to IIJA funding and data centers.
For example, NV5 recently announced a $5 million data center substation design service contract in Georgia and Nevada.
The Street is just now getting to know Acuren, and there’s still much to learn about the company…
Our research efforts are looking at the value chain for AI for maintaining and sustaining the actual data centers and the AI network on a go-forward basis.
So my bet on a go-forward basis is you’ll see more companies that are services for energy infrastructure or water infrastructure.
So we already cover a couple of names that benefit, including Core & Main (NYSE:CNM) and CRH.
But my bet is you’re going to see more in the coming months.”
Get all the details on construction stocks and other infrastructure equities by reading these interviews from top tier equity analysts in the new Construction, Building Materials, Basic Materials and Specialty Chemicals Report, exclusively from the Wall Street Transcript.
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