Is the construction sector investment trend already underway? Analyzing the 2024 Taiwan-U.S. construction stock rally and stock selection guide

After more than two years of silence, construction stocks have experienced a clear market reversal in 2024. Capital is gradually shifting away from the previously over-concentrated technology sector toward domestic-demand-related construction stocks. What investment logic does this reflect? This article will analyze in depth the investment opportunities, leading stock selections, and risk management strategies for construction stocks.

Three Major Drivers Behind the Construction Stock Rebound

1. The direct impact of improved housing market conditions

According to data from Taiwan’s Ministry of the Interior, residential transaction volume in Q1 2024 increased by 28.3% year-over-year, with housing prices remaining high. This indicates that revenue and profitability of construction companies will see a significant boost, laying a performance foundation for stock price increases.

2. Policy continuity support

Although the government has introduced measures to curb housing speculation, long-term homebuyers are less affected. More importantly, policies like “New Green Housing” incentives continue to release housing demand, further expanding the potential for construction stock performance.

3. Valuation recovery and catch-up effect

After experiencing a heavy decline in the second half of 2022, construction stocks’ P/E ratios are at low levels. Entering 2024, with the arrival of pre-sale housing handovers and optimistic earnings expectations from investors, these stocks have experienced a rebound. Many construction stocks offer relatively high dividend yields, making their upward momentum more apparent.

Classification and Investment Logic of Construction Stocks

Construction stocks are not a single concept but include two main business lines:

Construction Industry mainly engaged in engineering contracting, transforming blueprints into actual buildings, with a relatively focused scope. Examples listed on the Taiwan stock market include Runhong (2597.TW), Daxin Engineering (2535.TW), Genki (2546.TW).

Construction Sector involves the entire process from land development, housing design, to construction management and sales, with a broader scope. Related stocks include Huagu (2548.TW), Zongtai (3056.TW), Huangxiang (2545.TW), Yaxin (5213.TW).

Understanding the differences between these two types of companies helps investors choose according to their risk preferences.

Leading Construction Stocks in Taiwan Market

Based on 2023 financial performance and estimated dividend yields, the following are noteworthy:

In-Depth Analysis of Selected Taiwan Construction Stocks: Three Worth Continuing to Track

) Huagu: Beneficiary of Housing Policy Bonuses

Huagu’s main businesses include commercial building construction, residential sales, industrial real estate leasing, and import/export of building materials. As a comprehensive player in this sector, supported by the “New Green Housing” policy and a favorable economic outlook in 2024, the company is optimistic about its development over the next 1-2 years.

In terms of stock performance, Huagu began a recovery trend in late February 2024, rising from NT$82 to over NT$170 per share within less than a year, more than doubling. This reflects strong market expectations for its earnings growth.

Changhong: Performance certainty driven by handover boom

Changhong is expected to reach a record high in completed housing handovers this year, with seven new projects expected to be smoothly completed and revenue reaching the hundreds of millions level. In 2023, revenue was NT$9.845 billion, EPS was NT$6.32, and cash dividends of NT$5.5 were paid, with a payout ratio of 87%, indicating strong cash distribution capability.

The company’s on-hand projects exceed NT$150 billion, providing revenue support for the coming years. Benefiting from industry reversal, its stock price has increased over 70% since late February.

Xingfufa: Regional deep cultivation with growth potential

As a well-known domestic builder, Xingfufa continues to deploy projects in Taiwan’s seven key regions, with business touching on catering, shopping malls, hotels, and more. The company forecasts that completed projects over the next 4-5 years will total NT$4,485 billion, with annual revenue increasing from next year onward.

The stock price has surged over 50% in three months, reaching a new high, reflecting investor confidence in its long-term growth.

Investment Opportunities in U.S. Construction Stocks

Catalyst from U.S. infrastructure investment

The U.S. government has committed to a $1 trillion infrastructure investment for road repairs and public transportation modernization. This creates sustained demand for related industry chain companies. Similar to many industrial stocks, U.S. construction companies are often viewed as stable income providers, unlikely to double overnight but more likely to offer steady dividends to shareholders.

Overview of Leading U.S. Construction Stocks

$2B Investment Highlights of U.S. Construction Stocks

Caterpillar: Performance driver of the engineering machinery leader

As a global leader in manufacturing construction and mining equipment, Caterpillar benefits directly from increased construction demand. Its sales range from heavy machinery to financing services, generating billions annually from service and parts sales.

In 2023, total sales reached US$67.1 billion, up 13% YoY; operating margin was 19.3%, up 6 percentage points from the previous year; EPS was US$20.12, up 37%. These figures fully reflect its upward momentum.

Nucor: Long-term beneficiary of steel demand

Steel is a fundamental material for heavy construction. Nucor’s industry-leading low-cost manufacturing process allows it to remain profitable amid demand fluctuations. In FY2023, net profit was US$4.525 billion (down 40.27% YoY), operating revenue US$34.714 billion (down 16.38%), with basic EPS US$18.12. Despite short-term demand adjustments, it remains a core supplier for the construction industry in the long run.

United Rentals: Equipment supplier for small and medium contractors

When construction activity is active, small and medium contractors often need大量臨時設備，United Rentals通過遍佈北美和歐洲的1000多家分支機構滿足這一需求。公司過去十年收入複合年化增長率達14%，每股收益增速更達28%。

2023財年淨利潤21億美元（同比增加51.9%），營業收入116.4億美元（同比增加19.8%），展現出穩健的業績韌性。

Construction Stocks Investment Core Attractions

Compared to other sectors, construction stocks have several unique advantages:

High dividend characteristics: Most construction companies have strong cash flows and generally offer yields above 5%, suitable for investors seeking stable cash returns.

Inflation hedge properties: Real estate and building material prices tend to rise with inflation, giving construction stocks some defensive qualities.

Growth potential space: When the housing market improves, revenue and profit growth in construction companies directly drive stock prices higher. The industry cycle’s upward phase offers clear growth opportunities.

Risks to Watch When Investing in Construction Stocks

Despite the opportunities, investors should cautiously address multiple risks:

Industry policy risks: Changes in government real estate policies (such as purchase restrictions, loan limits, land policies) can directly alter supply and demand, impacting construction stocks.

Housing supply and demand changes: Increased industry competition, market demand shifts, and other factors may affect company performance and stock prices.

Company operational risks: Project delays, cost overruns, liquidity issues, etc., can lead to performance declines.

Financial risks: Excessive debt levels, funding difficulties, and insufficient repayment capacity require close attention.

Short-term correction risks: Many construction stocks have accumulated significant gains, with potential for technical corrections.

Risk Mitigation Investment Strategies

To effectively control risks, investors should consider: diversification, monitoring policy developments, regularly assessing company financials and project progress, and setting reasonable stop-loss points. Additionally, understanding macroeconomic conditions, industry cycle positions, and each company’s cost control capabilities is essential.

While investment opportunities in construction stocks are real, successful investing depends on thorough risk awareness and systematic management.