Are These 3 Building Material Stocks a Good Buy?

The demand for building materials remains constant due to their essential role in infrastructure development and construction projects. As economies expand, the need for new buildings, roads, bridges, and various structures continues to drive the steady growth of the building materials industry.

Given the backdrop, in this article, we explore three fundamentally solid building material stocks,  Griffon Corporation (GFF), United States Lime & Minerals, Inc. (USLM), and Argan, Inc. (AGX), which could be wise portfolio additions.

Before delving into the intricacies of these stocks, let's examine the reasons behind the expected growth of the building material industry.

The building material industry is anticipated to experience significant growth in the forthcoming years, bolstered by factors such as infrastructure projects, a growing population, rising per capita income, and strong government support.

The global building materials market achieved a significant milestone, reaching a value of $1.30 trillion. It is projected to experience further growth, aiming to reach $1.70 trillion by the year 2030, exhibiting a CAGR of 3.9%  from 2023 to 2030.

Additionally, the growth of the global building materials market is primarily driven by the development and adoption of innovative construction materials. In 2022, the global construction materials market achieved a size of $1.30 trillion, and it is projected to hit approximately $3.52 trillion by 2032, growing at an impressive CAGR of 10.9%.

Further, the federal government passed the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA), offering around $450 billion in investments to enhance the climate-friendliness and resilience of buildings and infrastructure. These investments are expected to bolster the implementation of green building techniques and sustainable practices.

Considering the solid growth projections, the building material industry is well-equipped to thrive amidst macroeconomic challenges. Thus, including three fundamentally sound building material stocks, GFF, USLM, and AGX, in your portfolio could be beneficial. Let us take a closer look at these stocks:

Griffon Corporation (GFF)

GFF provides consumer and professional home and building products in the United States, Europe, Canada, Australia, and internationally. It operates under the Consumer and Professional Products; and Home & Building Products segments.

On June 15, the company paid its shareholders a regular quarterly dividend of $0.125 per share. The company’s annual dividend of $0.50 translates to a 1.20% yield on the prevailing prices, while its four-year average dividend yield is 3.42%.

Its dividend payouts have grown at CAGRs of 11.7% and 8.9% over the past three and five years, respectively. Also, it has a record of 11 years of consecutive dividend growth.

GFF’s trailing-12-month EBITDA margin of 16.71% is 22.5% higher than the 13.64% industry average. Likewise, its 19.94% trailing-12-month levered FCF margin is 280.2% higher than the 5.24% industry average. Furthermore, the stock’s 35.99% trailing-12-month gross profit margin is 20.6% higher than the 29.83% industry average.

GFF’s total revenue for the second quarter (ended March 31, 2023) came in at $710.98 million, while its adjusted EBITDA amounted to $136.88 million.

The company’s adjusted gross profit increased 1.3% year-over-year to $269.14 million. During the same period, its cash and cash equivalents stood at $175.59 million, increasing 46.1% versus $120.18 million as of September 30, 2022.

Street expects GFF’s EPS and revenue for the third quarter (ended June 30, 2023) to be $0.91 and $701.44 million, respectively. Additionally, its EPS is expected to improve by 20.4% per annum over the next five years. 

The stock has gained 65.3% over the past year to close the last trading session at $41.76.

GFF’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Momentum and a B for Growth, Value, and Sentiment. In the 47-stock A-rated Industrial - Building Materials industry, it is ranked #11. Click here to see GFF’s ratings for Stability and Quality.

United States Lime & Minerals, Inc. (USLM)

USLM manufactures and supplies lime and limestone products in the United States. It extracts limestone from open-pit quarries and an underground mine and processes it as pulverized limestone, quicklime, hydrated lime, and lime slurry.

On June 16, the company paid its shareholders a regular quarterly dividend of $0.20 per share. The company’s annual dividend of $0.80 translates to a 0.38% yield on the prevailing prices, while its four-year average dividend yield is 2.15%.

Its dividend payouts have grown at CAGRs of 10.7% and 8.2% over the past three and five years, respectively.

In terms of the trailing-12-month EBITDA margin, USLM’s 34.35% is 97.7% higher than the 17.38% industry average. Likewise, its 21.37% trailing-12-month net income margin is 197.8% higher than the 7.18% industry average. Furthermore, the stock’s 40.62% trailing-12-month gross profit margin is 43.1% higher than the 28.39% industry average.

For the fiscal first quarter (ended March 31, 2023), USLM’s total revenues rose 31.2% year-over-year to $66.78 million, while its gross profit improved 65.8% year-over-year to $23.99 million.

The company’s net income and EPS increased 97.3% and 96.1% from the prior-year quarter to $17.10 million and $3, respectively. In addition, its operating profit grew 83.2% from the year-ago value to $19.84 million.

Over the past year, the stock has gained 98.7% to close the last trading session at $209.02.

USLM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.

It has an A grade for Growth, Momentum, and Quality and a B for Stability. Within the same A-rated industry, it is ranked #9. Click here to see USLM’s rating for Value and Sentiment.

Argan, Inc. (AGX)

AGX provides engineering, procurement, construction, commissioning, maintenance, project development, technical, and consulting services to the power generation market. The company operates through Power Industry Services; Industrial Fabrication and Field Services; and Telecommunications Infrastructure Services segments.

On June 20, AGX declared a regular quarterly dividend of $0.25 per share, payable to its shareholders on July 31, 2023. The company pays a $1 per share dividend annually, translating to a 2.52% yield on the current price level, while its four-year average dividend yield is 3.59%.

The stock’s trailing-12-month ROTC and ROTA of 7.69% and 5.83% are 9.5% and 13.3% higher than the 7.02% and 5.14% industry averages. Likewise, its asset turnover ratio of 0.95x is 18.2% higher than the industry average of 0.80x.

AGX’s revenue for the first quarter of fiscal 2024 (ended April 30, 203) increased 3.4% year-over-year to $103.68 million, while its net income amounted to $2.11 million and $0.16 per share.

During the same period, the company’s cash and cash equivalent came in at $195.95 million, up 12.6% compared to $173.95 million as of January 31, 2023.

The consensus EPS estimate of $0.75 for the second quarter (ending July 31, 2023) represents a 2.1% increase year-over-year. The consensus revenue estimate of $140.55 million for the ongoing quarter reflects a 19% improvement year-over-year.

AGX’s shares have gained 16.5% over the past nine months and 8.2% over the past year to close the last trading session at $39.

It’s no surprise that AGX has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Momentum, Sentiment, and Quality. Out of 47 stocks in the same industry, it is ranked #12.

In addition to the POWR Ratings we’ve stated above, we also have AGX’s ratings for Growth, Value, and Stability. Get all AGX ratings here.

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GFF shares were trading at $41.64 per share on Thursday morning, down $0.12 (-0.29%). Year-to-date, GFF has gained 24.89%, versus a 19.68% rise in the benchmark S&P 500 index during the same period.

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