Construction Industry Set to Boom in 2018: 4 Top Picks

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The construction industry in the United States is expected to grow by leaps and bounds in 2018. Also, a ratio which measures the optimism surrounding the sector's growth hit a record high recently. Further, hiring in the sector has been unusually high over the last one year. Meanwhile, a leaked draft of Trump's infrastructure spending plans indicates that the GOP will prioritize improving the existing roads and highways as well as non-federally funded utilities in the country.

Lastly, strong economic growth and recent tax reforms continue to boost the industry's growth. Such a scenario quite naturally calls for investing in construction stocks.

Construction Spending Hits a Record High

In November 2017, construction spending increased, surpassing expectations. The figure came in at $1.26 trillion, logging an annual growth rate of 2.4%. Such strength in spending was the result of increased investments across real estate, commercial and residential projects. Further, spending on private construction remained high and invited gains to the industry.

To top it all, firms operating in the space are also looking to expand their workforce as evident from unusually high hiring even under dire circumstances. Per the latest data by the Bureau of Labor Statistics, the construction industry added as many as 30,000 jobs to the U.S. economy in December, when parts of the country were ravaged by harsh winters.

In 2017 alone, the sector added 210,000 jobs, which represented a surge of 35% from 2016. Economists have already stated that such figures are indicative of excellent performance by the space in 2018.

Moreover, the ratio which measures the industry optimism over business growth hit a record high. Such optimism is backed primarily by business-friendly economic conditions and overall growth. Also, economists have stated that construction in the office market, transportation and retail will see a boom this year.

Infrastructure Spending to be Beefed Up

Optimism regarding growth of the construction industry surged post President Trump's victory as one of his key priorities was infrastructure investment. Although spending on government projects have declined 3.4% year to date, the figure is still close to an increase of 3% -- the highest monthly gain in three years - that it hit in October 2017. This is courtesy of higher spending at the federal, state and local levels.

Increased infrastructure spending was the cornerstone of Trump's pesidential campaign. As a matter of fact, he had proposed a $1 trillion infrastructure spending financed by new tax credits to encourage private equity investors. He plans to deploy $200 billion in federal money over the next decade to "incentivize another $800 billion in spending from state and local authorities and private entities."

That said, the question on investors' mind is: Will infrastructure spending be increased at all? One can roughly gauge that this might be possible. Efforts made by members of the GOP to push through tax reforms are indicative of their legislative intent. More than anything, it is the repute and the goodwill that President Trump and his team would like to maintain.

A leaked draft of Trump's infrastructure policy, published on Axios on Jan 23, 2018, clearly mentions that the administration is not keen on building new roads or highways and taking up "unsustainable projects." The administration instead focuses on improving the conditions of the existing roads and highways. The plan also hints at protecting non-federally funded utilities within the country. Such statements give a clear indication that the citizens will soon witness the passing of the Infrastructure Spending Bill.

Fall in Starts a Momentary Hiccup

The year started with a disappointing reading for housing starts. Per the Department of Commerce, housing starts declined 8.2% in December - its largest percentage drop since November 2016. However, analysts see such a downturn as temporary. Further, housing possibly felt the chill from December's brutally low temperatures.

Also, the 2.4% increase in homebuilding to 1.202 million units in 2017 is one important point to be noted. This is the highest level recorded in a decade. Strong economic growth, a robust labor market and tax cuts are continuing to bolster the housing industry.

Future demand is also likely to remain strong given the shortage in supply of existing homes. Also, homebuilders are not planning more speculative homes. These are units which still do not have a buyer. And this phenomenon has not been witnessed since the last housing boom, which preceded the recession of 2008. ( Read More )

4 Best Stocks to Buy

Market watchers remain optimistic about the construction industry's growth under robust economic conditions. We suggest you consider the following construction stocks to tap the opportunities building up.

These stocks have a favorable Zacks Rank indicating positive estimate revisions, which generally translate into rapid price appreciation. These flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Beacon Roofing Supply, Inc. BECN is the second-largest distributor of residential and non-residential roofing materials in the United States and Canada.

Beacon Roofing has a Zacks Rank #2. The company's projected EPS growth for the current year is 46.41%. The Zacks Consensus Estimate for the current year has improved 7.8% over the last 60 days.

D.R. Horton, Inc. DHI , based in Texas, is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets.

D.R. Horton carries a Zacks Rank #2. Its projected EPS growth for the current year is 29.01%. The Zacks Consensus Estimate for the current year has improved 9.7% over the last 60 days.

Deere & CompanyDE is the manufacturer and distributor of agriculture, construction and forestry equipment.

The Zacks Rank #2 company's projected EPS growth for the current year is 22.05%.

Fastenal CompanyFAST is a wholesale distributor of industrial and construction supplies in the United States.

Fastenal Company sports a Zacks Rank #1. Its projected EPS growth for the current year is 27.56%. The Zacks Consensus Estimate for the current year has improved 15.5% over the last 60 days.

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Fastenal Company (FAST): Free Stock Analysis Report

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

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

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