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Barron's: 2 Building Stocks That Can Survive Recession, Trade War

Barron's: 2 Building Stocks That Can Survive Recession, Trade War
Igor Tokalenko | Dreamstime.com

By    |   Wednesday, 16 October 2019 08:45 AM

One Wall Street analyst predicts that two building-materials stocks are sturdy enough to ride out a recession or trade war.

Bank of America Merrill Lynch’s Timna Tanners raised her ratings on Vulcan Materials (VMC) and Martin Marietta Materials (MLM) to “neutral” from “underperform,” Barron’s reported.

“Vulcan and Martin Marietta are among the largest miners of aggregates like gravel, sand, or crushed stone. Add cement and water and you have concrete, the most basic building component of practically all forms of infrastructure, residential, and nonresidential construction,” Barron’s explained.

Martin Marietta stock has returned 55% this year, including dividends, and Vulcan has returned 50%. That compares with a 20% return for the S&P 500, Barron’s explained.

Tanners predicts both companies look likely to report strong third-quarter results, and investors are interested in the concrete companies’ ability to maintain their pricing power and sales through a broader downturn.

“While we had been wary of high multiples into what we consider near peak earnings growth, we see some stickiness to the elevated multiples given a ‘flight to safety’ among cyclicals, and the group’s relatively more stable, defensive outlook relative to peers,” Tanners wrote in a research report.

Tanners also sees potential for dividend increases at both Vulcan and Martin Marietta. Each currently yields below 1%.

Meanwhile, U.S. construction spending barely rose in August as the largest increase in private residential investment in nine months was offset by a second straight monthly decline in outlays on nonresidential projects.

The Commerce Department earlier this month said construction spending edged up 0.1%. Data for July was revised down to show construction outlays unchanged instead of nudging up 0.1% as previously reported.

Economists polled by Reuters had forecast construction spending increasing 0.4% in August. Construction spending fell 1.9% on a year-on-year basis in August.

Spending on private residential projects jumped 0.9%, the biggest gain since November 2018, after rising 0.6% in July. Housing starts and building permits surged to a more than 12-year high in August, government data showed last month, lifted by declining mortgage rates.

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One Wall Street analyst predicts that two building-materials stocks are sturdy enough to ride out a recession or trade war.
building, stocks, recession, trade, war
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2019-45-16
Wednesday, 16 October 2019 08:45 AM
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