2 Construction Stocks to Buy on the Dip

The construction industry is expected to witness accelerated growth over the next several decades, thanks in part to the landmark $1.2 trillion Infrastructure Investment and Jobs Act. The bill will channel federal investments worth $550 billion into U.S. infrastructure over the next five years, touching everything from roads and bridges to water and energy systems. 

According to a ResearchAndMarkets report, the U.S. construction industry is expected to grow 3.7% year-over-year in 2022 and register a 3.7% compounded growth rate through 2025.

Given this backdrop, we think it could be wise to scoop up quality construction stocks Caterpillar Inc. (CAT) and Quanex Building Products Corporation (NX). They are currently trading below their 52-week highs but have significant growth potential.

Caterpillar Inc. (CAT)

Peoria, Ill.-based CAT manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company’s segments include construction; resource; energy and transportation; financial products, and others.

On Dec. 14, 2021, CAT’s subsidiary  Progress Rail, BNSF Railway Company, and Chevron U.S.A. Inc., a Chevron Corporation (CVX) subsidiary, announced that they had signed a memorandum of understanding (MOU) to advance the demonstration of a locomotive powered by hydrogen fuel cells. The solution could generate increased demand because using hydrogen fuel can reduce carbon emissions and help boost CAT’s long-term growth.

CAT’s revenue for its fiscal third quarter, ended Sept. 30, 2021, increased 6% year-over-year to $634 million. The company’s profit came in at $101 million, up 110% year-over-year. And its retail new business volume increased 29% year-over-year to $3.34 billion.

Analysts expect CAT’s EPS and revenue for its fiscal 2021 to increase 58.2% and 20.3%, respectively, year-over-year to $10.38 and $50.23 billion. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 14.2% in price to close the last trading session at $221.66. It is currently trading 10.1% below its 52-week high of $246.69, which it hit on June 4, 2021.

CAT’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has a B grade for Growth. And it is ranked #29 out of 79 stocks in the B-rated Industrial – Machinery industry. Click here to see the other ratings of CAT for Value, Momentum, Stability, Sentiment, and Quality.

Note that CAT is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Quanex Building Products Corporation (NX)

NX in Houston, Tex., manufactures components for original equipment manufacturers in the building products industry. Its components are categorized as window and door (fenestration) components and kitchen and bath cabinet components. Its segments include North American Fenestration segment (NA Fenestration), European Fenestration (EU Fenestration), and North American Cabinet Components (NA Cabinet Components).

For its fiscal fourth quarter, ended Oct. 31, 2021, NX’s net sales increased 14.2% year-over-year to $291.80 million. The company’s net income for its fiscal quarter ended Oct. 31, 2021, came in at $57 million, compared to $38.50 million in the year-ago period. Also, its EPS for the fiscal quarter ended October 31, 2021, came in at $1.70, compared to $1.17 in the year-ago period.

For its fiscal year 2023, NX’s EPS and revenue are expected to increase 10.1% and 3.7%, respectively, year-over-year to $2.07 and $1.15 billion. It surpassed the Street’s EPS estimates in three of the trailing four quarters. And over the past three months, the stock has gained 12.3% in price to close the last trading session at $23.05. It is currently trading 20.5% below its 52-week high of $29.02, which it hit on May 10, 2021.

NX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. NX has a B grade for Value and Quality. It is ranked #15 of 54 stocks in the B-rated Industrial – Building Materials industry. To see the additional ratings of NX for Growth, Momentum, Stability, and Sentiment, click here.

CAT shares were trading at $220.82 per share on Thursday afternoon, down $0.84 (-0.38%). Year-to-date, CAT has gained 7.33%, versus a -4.06% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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