We recently published an article on the 7 Best Construction Stocks To Buy According to Analysts. In this article, we will look at where Martin Marietta Materials, Inc. (NYSE:MLM) ranks among the best construction stocks to buy according to analysts.
The recent 50 basis point rate cut has given a significant boost to the market and put a lot of industries into focus. The construction industry could also benefit significantly from the cuts as lower interest rates reduce borrowing costs, increase demand for real estate, encourage infrastructure investment, and boost consumer spending. This leads to more construction projects and supports overall growth in the sector.
According to a Research and Markets report, the U.S. construction industry is set to grow by 5.6% in 2024, reaching $1.27 trillion, with a projected annual growth rate of 4.7% through 2028, reaching $1.53 trillion. The growth is supported by government policies focused on infrastructure development and efforts to bring manufacturing back to the U.S. Despite some cost pressures, major projects such as data centers and infrastructure investments are expected to drive industry growth.
Population Shifts and Industry Trends Reshape U.S. Construction Outlook
According to FMI corporation’s 2024 North American Engineering and Construction Outlook: Third Quarter, U.S. construction in 2024 is expected to surpass $2 trillion for the first time, a 6% increase from 2023. However, growth is projected to slow to around 3-5% annually over the next five years.
In residential construction, a mixed trend is emerging, with single-family home construction projected to grow by 7%, while multifamily construction may decline by 25%. Non-residential construction is set for 6% growth, driven by public safety and manufacturing sectors, each seeing over 20% growth. Heavy civil sectors, like power and transportation, are expected to rise by 8%.
The report emphasizes the influence of population shifts on construction activity, especially as people move from states like California and New York to Texas and Florida, which could boost construction in those regions. Despite future slowing growth, FMI noted that the upcoming five years will still mark some of the highest levels of construction spending since 1965.
The report discusses how political backing for renewable energy, electric transportation, and power systems will persist, with grid planners projecting a 5% annual growth rate through 2028. Data center power needs are expected to triple by 2030, while the oil and gas sector continues to expand infrastructure.
Infrastructure spending will remain elevated, although growth may slow as Infrastructure Investment and Jobs Act (IIJA) funds taper off after 2026. Bridge investments are leading highway construction projects, and future political discussions may increase funding for infrastructure.
Moreover, the EPA has identified a $630 billion funding gap for wastewater infrastructure, and the U.S. will need $650 billion over 20 years to improve water systems, mainly for repairing distribution networks. Federal funding from the IIJA and programs under the Safe Drinking Water Act will help support these projects. Investments in dams and coastal protection are also growing, focusing on environmental protection and resilience.
Our Methodology
For this article, we identified nearly 40 construction stocks through ETFs and stock screeners with a market cap of over $5 billion. We narrowed our list to 7 stocks with the highest average analyst price target, as of September 25. Finally, we also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Martin Marietta Materials, Inc. (NYSE:MLM)
Average Analyst Price Target Upside: 17.57%
Number of Hedge Fund Holders: 45
Martin Marietta Materials, Inc. (NYSE:MLM) is an American company that specializes in the production and distribution of building materials, including aggregates, cement, ready-mixed concrete, and asphalt. The company’s operations run across 28 US states, Canada, the Bahamas, and the Caribbean Islands.
Its product portfolio includes a wide variety of aggregates, such as crushed stone, sand, and gravel, as well as cement, concrete, and magnesia specialties. Its Magnesia Specialties business produces high-purity magnesia and dolomitic lime products used worldwide in environmental, industrial, agricultural, and specialty applications.
Martin Marietta (NYSE: MLM) has been pursuing strategic acquisitions and partnerships to advance its operations and market presence. In 2024, the company strengthened its footprint in the Southeastern U.S. with the acquisitions of Blue Water Industries and Albert Frei & Sons, which enable it to tap into promising new markets in regions such as Tennessee and South Florida.
The integration of these operations has exceeded management’s expectations, with a $7 million contribution to adjusted EBITDA in the second quarter. The company also has a healthy balance sheet with a net debt-to-EBITDA ratio of 2 times, which provides flexibility for future acquisitions and investments.
Martin Marietta (NYSE:MLM) is the 4th best construction stock to buy according to analysts. It has been covered by 23 analysts and 16 of them have a Buy-equivalent rating on it.
One of the latest Buy recommendations for the company was given by Jefferies analyst Philip Ng, as reported by TipRanks on September 6. The analyst has a price target of $650 on Martin Marietta (NYSE:MLM).
Baron Real Estate Fund stated the following regarding Martin Marietta Materials, Inc. (NYSE:MLM) in its Q2 2024 investor letter:
“In the second quarter, we acquired shares in Martin Marietta Materials, Inc. (NYSE:MLM), a leading producer of aggregates (77% of gross profit) and specialty products. The company’s products are sold and utilized in infrastructure projects such as highways, as well as residential and non-residential construction. Martin Marietta has local leadership positions across its footprint.
We believe aggregates are an attractive business for two main reasons: High barriers to entry limit new competition: Permits to open new quarries are difficult to obtain, and the approval process typically takes 5 to 10 years. Martin Marietta has more than 75 years of aggregates reserves at its current extraction rates. Consistent pricing power through cycles: Aggregates producers have historically enjoyed great pricing power owing to the difficulty in opening competing new quarries, the limited substitutes for quality aggregates, and a high weight-to-price ratio that makes transportation expensive relative to the cost of the material. In the last 30 years, pricing of aggregates has increased, on average, 4% per year…” (Click here to read the full text)
Overall, MLM ranks 4th on our list of the best construction stocks to buy according to analysts. While we acknowledge the potential of MLM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. None. This article was originally published on Insider Monkey.