Core & Main (NYSE:CNM) is just one of many infrastructure stocks highlighted by this expert portfolio manager.
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.
In this 2,072 word interview, exclusively in the Wall Street Transcript, Ms. Thompson details the reasoning behind picking Core & Main (NYSE:CNM) as well as many other infrastructure stocks for her portfolio.
“I am the co-founder and CEO of Thompson Research Group. We started in spring of 2009. And we were one of the early movers in the independent equity research platform.
Today, our business model has evolved, and we are an equity research and advisory firm focused on the construction and industrial value chain.
So that’s anything that touches the residential, non-res, or public construction and markets, whether it’s product or service.
Our equity research clients include large institutional investors — hedge funds, mutual funds and pension funds in the U.S. and Europe. Our consulting and advisory clients are both public and private companies, in addition to private equity and family offices.”
Core & Main (NYSE:CNM) is a good representative of a company that benefits from both government initiatives and the results of increased storm activity in the United States.
“…There are companies such as Core & Main (NYSE:CNM) which fit squarely into water infrastructure and address that issue.
On the other end, you have companies in the heavy materials space that are providing some of the very basic infrastructure to support wind energy buildout.
There’s a lot of rock and a lot of concrete that goes into wind farms.
So those are just two examples.
But overall, the significant driver for demand is either building the infrastructure or being key factors in the value chain that help with environmental matters and that are important for dealing with global warming…
I’ve already touched on, is Core & Main.
This company went public a couple of years ago, and CNM fits squarely into the water infrastructure network.
And it’s a big winner.
The other ones, which is a little bit of a twist, are cement producers, which are the largest producers of CO2 globally.
Cement producers that are very proactively taking measures to reduce their carbon footprint will be net winners, because ultimately, cutting cement production emissions is critical to global carbon footprint reduction.
And there are three names that we view as leaders there — Summit Materials (NYSE:SUM), Martin Marietta Materials (NYSE:MLM) and CRH (NYSE:CRH).
CRH was traded on the London Stock Exchange, but the company just made an announcement earlier this year about the shift to primary listing on the NYSE.
TRG picked up coverage of CRH in June. In fact, we were the first U.S. analysts to pick up coverage.
Dublin-based CRH operations are both in the U.S. and Europe, with ~75% EBITDA in the U.S.
CRH is emerging as one of the world’s thought leaders in how to be responsible for pushing ESG initiatives in the construction industry.”
There may be a competitive innovation to challenge the main products from Core & Main (NYSE:CNM).
“The industry is looking for all sorts of replacement for cement, which is the number two emitter of CO2 globally.
And there is some technology that is being developed to replace the need for so much cement consumption overall.
So that is one area.
The other really basic one is increased use of vehicles using alternative fuels and/or electric vehicles — think about uses for those big heavy concrete trucks that you see rumbling through the city, or big hauling trucks you see in rock quarries.
It’s those type of vehicles that could be moved to non-diesel or non-gas-consuming vehicles.”
Cement is the dominant revenue source for more companies than just Core & Main (NYSE:CNM).
Last week, what MLM reported was a beat for Q2, which was largely driven by upside in its cement and ready-mix concrete earnings contributions. MLM also raised its FY’23 guidance on better pricing momentum.
This is the theme we expect to continue throughout 2023.
Pricing actions that were made last year and that are continuing into this year, even with pretty OK volumes — and when I say pretty OK volumes, organic or aggregate crushed rock volumes forecast report from Martin are supposed to be down 5% to down 1%.
So it’s not like you’re having double-digit volume increases in gaining pricing momentum.
Against that backdrop, their organic aggregate pricing is forecasted to be up 17% to 18%.
So that’s the real story of the names that you’re seeing.
And when you ask, why in the world would you have such strong pricing with such tepid volumes, even if you’re facing just tough comps?
It all goes back to visibility, which goes back to our original golden era themes driving fundamental growth in the construction industry.”
General interest in companies like Core & Main (NYSE:CNM) is increasing as construction becomes an ever increasingly important component in the US economy.
“We publish six different industry surveys that we publish on a quarterly basis. It’s from building products — so it could be wallboard, roofing, flooring, and lighting — to bonding and surety survey, which is looking very heavily at the non-res end market, and everything in between.
It focuses on capturing a large relative market share of the space.
And because the construction industry is largely still private, we’re able to do that by connecting with key private contacts.
This is done through building relationships over 20 years.
And many times, we’re talking to C-suites of these large companies.
So with that, we get a view of not just what’s going on with volume and pricing, but really the outlook and the flavor of fundamental drivers of demand.
And it is these types of surveys that help us to identify secular trends and inflection points and bigger themes that drive key investment and stock picks.
Who’s interested in these surveys?
When we first started that, it was very much our core institutional investor base.
So if you’re a hedge fund, and you’re a large holder of let’s just say Vulcan or Martin, you really want to focus on what’s going on with our heavy materials or state revenue and DOT survey.
Then, more recently, within the past five to six years, we’ve had strong interest from the industry.
And so that’s public companies, private companies, and private equity that also have had an interest, because looking at and reviewing our reports helps them to forecast and think about managing their own business.”
Get all the detail on Core & Main (NYSE:CNM) and the many other stock picks in this interview, exclusively in the Wall Street Transcript.