5 Building Product Stocks Set to Benefit From Industry Upswing

Industry Overview - The Zacks Building Products - Miscellaneous industry is experiencing growth due to increased government infrastructure spending, which is driving demand for construction-related products and services [1] - Key players in the industry, such as United Rentals, Inc., Masco Corporation, Construction Partners, Inc., Hillman Solutions Corp., and Quanex Building Products Corporation, are well-positioned to capitalize on these trends [1] Current Challenges - The industry faces near-term challenges from high mortgage rates, affordability concerns, and inflation-related cost pressures, including tariffs on raw materials like iron, steel, and copper [2] - Despite these challenges, proactive cost management and pricing strategies are helping to mitigate headwinds [2] Industry Description - The industry comprises manufacturers, designers, and distributors of home improvement and building products, including ceiling systems, doors, windows, flooring, and metal products [3] - Companies also provide solutions for rehabilitating aging infrastructure and rent equipment to a diverse customer base [3] Future Trends - Strong global trends in infrastructure modernization and energy transition are expected to benefit industry players [4] - Improving residential construction markets are anticipated to drive growth, with builders cautiously optimistic for 2025 due to a lack of existing inventory [4] Operational Strategies - Industry participants are implementing cost-saving initiatives, including business consolidation and supply chain improvements, to boost profitability [5] - Strategic investments in new products and acquisitions are being pursued to supplement organic growth [5] Tariff Impact - U.S. tariff policies are increasing costs and disrupting supply chains, leading to heightened inflation [6] - Overall construction input prices were reported to be 1.1% higher in June compared to the previous year [6] Market Performance - The Zacks Building Products - Miscellaneous industry has underperformed the S&P 500 Composite and the broader Zacks Construction sector over the past year, losing 8.4% [12] - The industry is currently trading at a forward P/E ratio of 16.7X, lower than the S&P 500's 22.61X and the sector's 18.76X [15] Company Highlights - Construction Partners: Positioned for strong growth with a record project backlog of $2.84 billion and significant revenue growth from acquisitions [20][21] - Quanex: Benefiting from the acquisition of Tyman, contributing to a 67.3% year-over-year increase in consolidated sales [24][25] - United Rentals: Growth driven by strong demand in infrastructure projects and a stable customer sentiment, with a reaffirmed full-year guidance [27][28][29] - Masco: Facing a potential $400 million tariff headwind but expects to offset 50%-65% through pricing and cost reduction efforts [31][32] - Hillman: Aiming to reduce reliance on Chinese suppliers and maintain sales growth despite macroeconomic challenges [35][36]