5 Audacious Construction Stocks

I don’t have all that much extrasensory perception (ESP), but let me make a prediction. Please put your left hand on the monitor and I'll feel the vibes coming through. Let's see, let's see -- ah! Your portfolio is down this year.

OK, that was an easy one given that the S&P 500 index is down 13% year to date.

Now let me make another prediction (no need to touch the monitor this time). Your appetite for risk is down as well. After all, a 13% loss is not insignificant and you are probably concerned about losing more money even if it is only on paper. Maybe you owned Washington Mutual (NYSE: WM  ) , E*Trade Financial (Nasdaq: ETFC  ) , or any of a whole host of financial companies that have been crushed, and this has you a bit disillusioned, maybe even scared.

But the best investors tell us that it isn’t good to let your emotions interfere in investment decisions. You shouldn’t change your risk tolerance just because the market drops. If anything, the fact the market is 13% cheaper should make a new purchase more appealing. These types of extreme buying opportunities are what make those best investors hop, skip, and jump into work. You think Warren Buffett is dragging his tail into work every day?

But it is oh-so-hard to ignore your emotions, and with the market down so far, you need a break. So let’s follow your emotions (just this once) and look for sturdy companies that are low risk, have solid physical assets and cash flows, and won't go away. (Did you get the “solid” theme?)

What better place to start than construction? The industry has been around for ages and certainly isn’t lacking in physical assets, unlike some of the financial companies making the headlines. Because we want to lower our risk, we should look for the bigger players because they have larger economies of scale and can better weather weak markets. And just to make sure we get top-quality companies, let’s make sure they have:

  • A three-star rating or better in CAPS -- these are the ones which have done the best
  • ROE better than 10%
  • Debt-to-equity ratio of less than 0.75
  • P/E of less than 20.
  • Trading no more than 25% above their 52-week low
  • Market capitalization over $2 billion  

Plugging in those criteria into the screening tool found in CAPS, The Motley Fool’s community intelligence database of 110,000-plus investors, returns the afore-mentioned five audacious companies, shown below. 

Company Name

Current CAPS Rating

ROE % (TTM)

Market Cap (billions)

P/E (TTM)

% Above 12-month Low

Long Term Debt/Equity Ratio

Cemex (NYSE: CX  )

*****

19

$17.2

6.8

9%

0.49

Chicago Bridge & Iron (NYSE: CBI  )

*****

22

$3.2

18.9

21%

0.21

Vulcan (NYSE: VMC  )

***

10

$6.7

16.2

23%

0.41

Valspar (NYSE: VAL  )

***

12

$2.1

13.5

21%

0.57

CRH (NYSE: CRH  )

*****

18

$15.1

7.3

24%

0.75

Source: Motley Fool CAPS, as of July 21. TTM = trailing 12 months

At first glance these are extremely uninteresting companies: two cement firms (Cemex and CRH), one aggregates business (Vulcan), one engineering and construction firm (Chicago Bridge & Iron), and a paint-and-coatings company (Valspar). How on earth can any one of these companies be referred to as audacious, let alone all five of them? And if they are so great, why are they near their 12-month lows?

The "audacious-ness" comes from the fact that most of these companies are monsters in their industries with strong competitive advantages, and getting bigger and better all the time. Cemex and CRH are two of the gorillas in the worldwide building materials business, and are buying up smaller competitors in what is still a very fragmented industry. Vulcan has a network of difficult-to-replace quarry assets that gives it a big competitive advantage. Chicago Bridge & Iron is the go-to player to build natural gas terminals and plants, a real sweet spot at the moment. And Valspar is an experienced provider of paints and coatings to a variety of markets, trading well below its average historical multiples.

There you have it -- five audacious construction stocks for the low-risk investor side of you. It is just one example of how a clever screen in CAPS can yield some great investment ideas. Come join us to investigate these and countless other interesting stock ideas, and perhaps rate some stocks of your own.

Fool analyst Andrew Sullivan has the audacity to like blue chips (the stock and potato kind), owns shares in Cemex, but doesn't have a financial position in any other stocks mentioned in this article. Cemex is a Global Gains and Stock Advisor recommendation, and The Fool also owns some shares. Chicago Bridge & Iron is also a Global Gains recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has an audacious disclosure policy.


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