2 Great Construction Equipment Stocks - Analyst Blog

By Swarup Gupta,

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Construction spending moved up 0.1% in January, defying the effects of a harsh winter. Private sector residential construction was primarily responsible for the upsurge, increasing 0.9%. However, the story was radically different for nonresidential construction spending, which declined for the second month in a row. The figure fell 0.3% in January.

Outlook for 2014

Harsh winter weather is being attributed as the primary reason for the misfortunes of nonresidential construction. During 2013, residential construction improved substantially, even as non-residential construction struggled somewhat.

But non-residential construction is expected to recover in 2014. According to Ken Simonson, chief economist for Associated General Contractors of America (AGC): "We will see 10 to 15 percent improvement in private residential construction and about a 10 percent increase in private non-residential work in 2014."

Increase in Sectoral Employment

An analysis of the government's employment report released last week by the AGC revealed that non-residential construction contributed 15,000 jobs in February. More importantly, construction employment came in at 5,941,000. This is the highest figure in four and a half years and a 2.6% increase from the year-ago period.

Heavy and civil engineering construction added 12,300 jobs in February.  Employment in this segment has increased by 1.4% since last year. Meanwhile, job additions by nonresidential specialty trade contractors have increased by 1.2% annually.

Crucial Subsectors Gain

On closer examination of the construction spending report we find that expenditure has fallen in 11 of the 16 nonresidential construction subsectors. However, three of the six largest subsectors registered increases over the period.

According to Associated Builders and Contractors Chief Economist Anirban Basu: "This is a reflection of a number of factors, including technological innovation in the nation's energy sector, led by North Dakota and Texas, and the start of two large manufacturing projects: a $450 million oil refinery in North Dakota and a $1.2 billion propane dehydration facility in Alvin, Texas."

Below we present two construction equipment stocks which will gain from this trend, each of which also has a good Zacks Rank.

H&E Equipment Services Inc.

H&E Equipment Services Inc. ( HEES ) rents, sells and provides parts and service support for hi-lift or aerial work platform equipment, crane, earthmoving equipment and industrial lift truck categories. It offers heavy construction and industrial equipment for rent on a daily, weekly and monthly basis.

The company is set for market expansion in the industrial markets and in the commercial construction sector. Construction activity in the industrial arenas, particularly the oil patch and petrochemicals industries, is currently at the highest levels seen since the last peak cycle. It is expected to grow further going forward.

H&E Equipment Services holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 23.10%. The forward price-to-earnings Ratios (P/E) for the current financial year (F1) is 21.59.

The Manitowoc Company, Inc.

The Manitowoc Company, Inc. ( MTW ) operates across multiple industry segments, primarily cranes and related products and food service equipment. The crane segment produces several products such as tower cranes, mobile telescopic cranes, lattice-boom cranes, and boom trucks.

Crane utilization and rental rates continue to improve with demand. Going forward, demand from the wind sector as well as from oil and gas markets is expected to grow. Manitowoc remains optimistic about its new products, which include an array of technologically advanced products that have been launched at ConExpo, the premier construction-equipment trade show that was held in Las Vegas last week.

Currently the company holds a Zacks Rank #2 (Buy) and has expected earnings growth of 14.30%. It has a P/E (F1) of 18.97.

The oil and gas related boom is expected to provide significant impetus to the nonresidential construction sector in the future. This is why these stocks would make good additions to your portfolio.

H&E EQUIP SVCS (HEES): Free Stock Analysis Report

MANITOWOC INC (MTW): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AGC , HEES , MTW

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