Investing Essentials: Construction Materials

The construction materials business is massive, with a lot of opportunity for timely investors. It's also very cyclical and sensitive to the rest of the economy.

Aug 15, 2014 at 12:00AM

Cemex Plant
Multinationals like Cemex are one way to invest in construction materials. Source: Cemex.

Construction materials sounds like one of the most boring, mundane places to invest. After all, concrete has been around since ancient Rome, right? This may be true, but the reality is, pretty much everything about modern society starts with this incredibly important industry. It's also full of innovation, driven by science, and just as concerned with developing renewable and environmentally sustainable products as organic farming can be. And it's a huge industry. 

In 2014, total construction spending is expected to be nearly $1 trillion in the U.S. alone, making it one of the largest industries, and it's dotted with companies of nearly every shape and size. Add in the fact that construction is still on the soft side as the country continues to recover, and now could be a great time to invest in this cyclical industry. Let's take a closer look at what exactly the construction materials segment is, and maybe you can use that information to find some great places to invest. 

What is the construction materials industry?

Weyerhaeuser Trees

Weyerhaeuser manages more than 20 million acres of tree farms globally. Source: Weyerhaeuser.

Essentially, these are companies that produce raw and finished goods that are used in construction. The industry is largely made up of large companies like global concrete maker Cemex, and wood products giant Weyerhaeuser. You also have steel companies like Nucor, which manufactures a number of products specifically for the construction industry. 

What it's not, however, is building products. This can be a bit of a gray area, but the best way to think about it is that building products tend to be factory-produced finished goods, like lighting fixtures, air conditioning units, cabinets, and other non-structural stuff. Construction materials are often the base components that make up the walls, frame, and foundation of a structure. 

How big is the construction materials industry?

In a word, enormous:

Data source: U.S. Census Bureau.

Of course, construction materials is just a subset of this, as the spend above includes all government and private construction, both commercial and residential. The construction materials industry is the foundation of every construction project, whether it's the asphalt for a multimillion dollar highway project, or the gypsum wallboard for a $20,000 kitchen remodel. 

How does the construction materials industry work?

With few exceptions, the products in this industry are rarely sold to the end user. Typically, a manufacturer -- take Boise Cascade, for example -- will produce its product -- like plywood, for instance -- and sell it to a distributor. The distributor will then supply construction professionals, who will use the material to produce a finished good, like a house or an office building. 

Wheel Stopper Flickr Making Things Better

This tire stopper is an example of how removed consumers can be from construction materials companies. Source: Flickr user Making Things Better

Construction materials companies often sell their products to manufacturers, as well, who can use these raw materials to produce finished goods that are incorporated into a final product. For example, a concrete company might supply a manufacturer of parking lot bumpers. The point is, these companies are typically behind the scenes, and not consumer-facing, though many are driven by consumer demand based on the health of the overall economy. 

What drives the construction materials industry?

The table above illustrates quite well how much it's driven by the rest of the economy. The reality is, new construction projects largely rely on a healthy consumer economy. A business won't just build a new warehouse because the owner wants it: It relies on customer demand of its product or service, which is itself a product of a healthy economy to support that demand. 

This, in turn, drives residential construction projects -- as does population expansion. But what it really boils down to is that the construction industry -- and, therefore, construction materials -- is heavily dependent on a healthy, vibrant economy. 

Cash Register Steve Snodgrass

Source: Steve Snodgrass via Flickr

From an investing perspective, this means that companies in this industry can be quite cyclical, riding the wave up in a booming economy, and often faltering on the downturn. These companies, due to the nature of producing these products, often have very high fixed costs. When things slow down, those fixed costs can really hurt the bottom line until fixed costs can be lowered through activities like idling plants and reducing labor headcount. Needless to say, these are hard things to do, and can take a lot of time; that can compound the losses. 

What's the point? Be sure you consider cyclical risk when investing in this industry.


Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers