With ongoing population growth, urbanization, and the need for infrastructure maintenance and expansion, the necessity for building materials is perpetual, as the construction industry heavily relies on them.

In this context, I have highlighted three quality industrial building material stocks  James Hardie Industries plc (JHX), Installed Building Products, Inc. (IBP), and  Tecnoglass Inc. (TGLS), which are fundamentally sound and could be solid portfolio additions.

The building material industry’s growth is driven by the increased adoption of recycled and eco-friendly materials coupled with rising demand for smart materials. The global advanced building materials market is projected to experience significant growth from 2022 to 2027, with an estimated increase of $17 billion, or at a CAGR of 5.3% during the forecast period.

Further, the market for green building materials is poised for a promising future as awareness of their benefits continues to surge. The implementation of carbon-neutral green building materials is expected to play a pivotal role in the mission to control greenhouse gases and reduce carbon emissions.

In the United States, the green building materials market is forecasted to achieve a CAGR of 10.9% from 2023 to 2033, while the global industry is expected to see a slightly higher CAGR of 11.2%, reaching over $962 billion by 2033.

On top of it, Artificial intelligence (AI) is catalyzing a digital transformation in the construction industry. Leveraging technologies like AI and machine learning across engineering and construction could unlock the industry’s potential.

In the past year, the AI market in construction was valued at $2.74 billion and is anticipated to witness substantial growth in the next five years, reaching $9.53 billion by 2028, exhibiting a remarkable CAGR of 24.3%.

Given the technology advancements and sustainability initiatives, the industrial sector, particularly the building material industry, should continue to remain a bright spot this year. Thus, investors could consider buying quality industrial stocks JHX, IBP, and TGLS. Let us examine the fundamentals of the featured stocks in detail to get a perspective:

James Hardie Industries plc (JHX)

Based in Dublin, Ireland, JHX manufactures and sells fiber cement, fiber gypsum, and cement-bonded building products for interior and exterior building construction applications. Its products are used in residential repair and remodel, and commercial and residential new construction markets.

JHX’s trailing-12-month EBIT margin of 20.61% is 78.7% higher than the 11.53% industry average. Likewise, its 34.78% trailing-12-month ROCE is 225.6% higher than the 10.68% industry average. Furthermore, the stock’s 19.30% trailing-12-month ROTC is 215.5% higher than the 6.12% industry average.

For fiscal 2023, which ended March 31, 2023, JHX’s net sales increased 4.5% year-over-year to $3.78 billion, while its gross profit came in at $1.31 billion.

The company’s net income and EPS amounted to $512 million and $1.15, up 11.5% and 11.7% from the prior-year period, respectively. Also, its operating income rose 8.6% from the year-ago value to $741.40 million.

Analysts expect JHX’s EPS for fiscal 2024 (ending March 31, 2024) to increase 16.7% year-over-year to $1.59. While its revenue for the same period is expected to be $3.56 billion. Moreover, its EPS is expected to improve by 4.8% per annum over the next five years.

The stock has gained 53.9% year-to-date to close the last trading session at $27.46.

JHX’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 Stability and a B for Sentiment and Quality. In the 47-stock A-rated Industrial – Building Materials industry, it is ranked #20. Click here to see JHX’s ratings for Growth and Value.

Installed Building Products, Inc. (IBP)

IBP engages in the installation of insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, and other products in the continental United States. It serves homebuilders, multi-family and commercial construction firms.

On June 30, IBP paid its shareholders a quarterly dividend of $0.33 per share. This second quarter dividend reflects a 5% increase compared to the dividend paid during the same period last year. The company’s annual dividend translates to a 0.89% yield on the prevailing prices, while its four-year average dividend yield is 0.92%.

On March 31, IBP acquired Anchor Insulation Co., Inc., which specializes in installing residential, mechanical, and industrial insulation. With branches in Rhode Island, Connecticut, and Massachusetts, Anchor Insulation serves a diverse clientele comprising residential, commercial, and industrial customers throughout the Northeast region.

The acquisition is anticipated to play a significant role in expanding IBP’s presence in the Northeastern United States.

The stock’s trailing-12-month ROTC and ROTA of 15.89% and 13.42% are 158.5% and 268.6% higher than the 6.15% and 3.64% industry averages. Likewise, its trailing-12-month net income margin of 8.71% is 107.5% higher than the industry average of 4.20%.

IBP’s net revenue for the first quarter (ended March 31, 2023) increased 12.2% year-over-year to $659.31 million. Its gross profit improved 22.1% from the year-ago value to $210.42 million.

The company’s net income and EPS rose 45.7% and 52.6% from the prior-year quarter to $49.27 million and $1.74, respectively. While its operating income amounted to $76.88 million, up 34.9% year-over-year.

Street expects IBP’s revenue and EPS for the second quarter (ended June 30, 2023) to be $657.67 million and $2.26, respectively. Additionally, its EPS is projected to increase by 5.9% per annum over the next five years. Moreover, the company has an impressive earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

Over the past nine months, the stock has gained 87.8% to close the last trading session at $145.39.

IBP’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 a B grade for Momentum and Quality. Within the same A-rated industry, it is ranked #21. Click here to see IBP’s ratings for Growth, Value, Stability, and Sentiment.

Tecnoglass Inc. (TGLS)

Headquartered in Barranquilla, Colombia, TGLS designs, produces, markets, and installs architectural systems for the commercial and residential construction industries worldwide. The company offers low emissivity, laminated/thermo-laminated, thermo-acoustic, tempered, silk-screened, curved, and digital print glass products.

On June 15, TGLS declared a quarterly dividend of $0.09 per share, payable to its shareholders on July 31, 2023. The company’s annual dividend of $0.36 translates to a 0.73% yield on the prevailing prices, while its four-year average dividend yield is 2.84%.

On April 20, TGLS announced a strategic partnership with Wells Fargo to establish a new ES Windows financing program. The program will be available nationwide for existing and expanding geographies, benefiting dealers and end consumers with competitive and affordable financing options directly from Wells Fargo.

By leveraging this partnership, TGLS can incentivize both clients and end consumers, leading to incremental sales growth and an expanded reach to a wider audience. Additionally, this also aligns with the company’s single-family residential expansion strategy.

In terms of the trailing-12-month EBITDA margin, TGLS’ 37.15% is 172.4% higher than the 13.64% industry average. Likewise, its 23.34% trailing-12-month net income margin is 268.1% higher than the 6.34% industry average. Furthermore, the stock’s 54.13% trailing-12-month ROCE is 288.3% higher than the 13.94% industry average.

In the fiscal first quarter that ended March 31, 2023, TGLS’ total operating revenues rose 50.6% year-over-year to $202.64 million, while its gross profit grew 78.6% from the year-ago value to $107.76 million.

The company’s net income and EPS came in at $48.37 million and $1.01, representing increases of 130.9% and 129.5% from the prior-year quarter, respectively. In addition, its operating income improved 116.9% year-over-year to $73.68 million.

The consensus EPS estimate of $1.07 for the second quarter (ended June 30, 2023) represents a 54.5% increase year-over-year. The consensus revenue estimate of $208.90 million for the same quarter reflects a 23.5% improvement year-over-year. Moreover, the company topped the EPS and revenue estimates in each of the trailing four quarters, which is excellent.

TGLS’ shares have gained 137.2% over the past nine months to close the last trading session at $47.43.

It’s no surprise that TGLS has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Growth, Sentiment, and Quality. Out of 47 stocks in the same industry, it is ranked #16.

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

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JHX shares were trading at $27.37 per share on Friday afternoon, down $0.09 (-0.33%). Year-to-date, JHX has gained 52.56%, versus a 19.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run. More...

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