Construction stocks to buy in the boom
All housebuilders should benefit from a positive environment for new housing, but some construction stocks will do better than others.
![Houses in England with typical red bricks at sunset](https://cdn.mos.cms.futurecdn.net/8uZqSW9ZsMmqfwD6L4Pk8G-415-80.jpg)
All house builders should benefit from a positive environment for new housing, but some construction stocks will do better than others.
Construction stocks to buy
Taylor Wimpey (LSE: TW) has national coverage and a large range of house types providing it with exposure to most eventualities. Its CEO is from a planning background and, as a result, it is well positioned for a freeing up in the land market.
Persimmon (LSE: PSN) is generating returns far below its old levels, leaving plenty of room for improvement. It is well exposed to parts of the country where the affordability of housing is less stretched and is, therefore, less at risk if high mortgage rates remain unhelpful.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
MJ Gleeson (LSE: GLEE) has the purest exposure to houses built for those on a lower income and, therefore, those most positively affected by plans to improve the affordability of housing. The types of houses built by MJ Gleeson are likely to be favoured by the new government, which made affordability a key election point.
Vistry (LSE: VTY) has perhaps the greatest potential because it is converting from being a traditional house builder to using a partnership model. Partnerships require much less capital and since Vistry is still transitioning to the model, its balance sheet is strong. At present, the plan is to return almost a quarter of the market capitalisation in shareholder returns. But much of this return is discretionary and, should growth opportunities increase significantly, Vistry is uniquely well-placed to fund the expansion. Additionally, its partnership model means it is in the best position to fulfil any strategic housing developments such as those from local housing authorities.
Turn your attention to the supply chain
However, the greatest investment opportunities may lie within the supply chain, where the capacity for a sudden increase in demand is most constrained. Here simple supply and demand dynamics make for an attractive backdrop. There will be a delayed response to bringing on new supply of heavy raw materials, as opening new factories and quarries takes even longer than new housing developments.
Due to weakness in UK construction in the last two years, valuations for the suppliers are very undemanding, making investments here particularly attractive. The area least able to respond to significantly higher demand, as well as being the purest play on house building, is brick manufacturing.
Both Ibstock (LSE: IBST) and Forterra (LSE: FORT) could be big winners with smaller, specialist manufacturer Michelmersh (LSE: MBH) also likely to benefit. Elsewhere, any capacity-constrained industry supplying the house builders should also do well.
In aggregates and cement, Breedon (LSE: BREE) is well positioned with sales to both the housing sector and the infrastructure that supports housing. Genuit (LSE: GEN) provides pipes and filtration to the housing sector. While it is higher up the value chain than heavyside materials, its products also don’t travel well and as a local producer, it should benefit.
Finally, equipment will see higher demand, which for a few years at least should lead to greater rental rates benefiting the likes of VP Group (LSE: VP).
Jamie holds shares in Breedon, Forterra and Vistry.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Jamie Ward is manager of the CRUX UK fund
-
Apple loses court battle over €13bn tax bill - should you invest?
The case against Apple was brought by the European Commission and ends an eight-year dispute
By Chris Newlands Published
-
“Fast-track justice” goes off the rails: is it time to rethink the system?
Single Justice Procedures, or fast-track justice, designed to deal with minor offences, have become increasingly heavy-handed. Is it time for an overhaul?
By Simon Wilson Published
-
The peak of the AI frenzy has passed
When did the AI frenzy peak and what does it mean for tech companies?
By Alex Rankine Published
-
The battle against heart disease and how to invest in it
Heart disease is soaring due to rising obesity and an ageing population. But new drugs, treatments and diagnostic tools are on the way.
By Dr Matthew Partridge Published
-
Woodside Energy: an undervalued energy play
Woodside Energy offers a cheap way to invest in the growth of the global LNG market. Should you invest?
By Rupert Hargreaves Published
-
Small caps: how to ride the recovery wave of UK equities
Professional investor Ken Wotton highlights British small caps that hit the sweet spot of the British equity market
By Ken Wotton Published
-
Investing in defence: the easiest way to buy into the boom
The defence sector has taken off, but the opportunities for stock picking are more limited. We explain what to buy
By Frederic Guirinec Published
-
The investment opportunities in a bear market
As equities fell sharply in August, Max King explores the investment opportunities in a bear market
By Max King Published
-
How to invest in Web 3.0
Here are three core holdings at the forefront of Web 3.0 development that could shape the next era of the internet, according to Chanchal Samadder, head of product at ETC Group
By Chanchal Samadder Published
-
How investors can cash in on undersea cables
Undersea cables are in demand as the renewable energy boom has sparked a race to rewire the world
By Rupert Hargreaves Published