How to choose construction stocks? Comparison of Taiwan and US industry leaders and practical strategies

In the 2024 construction stock rankings, Taiwan stocks performed outstandingly. After more than two years of silence, construction-related stocks began to rebound at the end of February, with capital flowing from tech stocks to domestic demand stocks, thus presenting a significant recovery opportunity for construction stocks.

Core of Construction Stock Rankings: Clarify the Two Major Categories First

When discussing construction stock rankings, it is essential to understand which companies are included. “Construction stocks” broadly refer to listed companies engaged in building, engineering contracting, real estate development, and infrastructure construction.

Industry insiders typically divide them into two main camps:

Construction Industry Camp primarily undertakes engineering and construction tasks, responsible for turning blueprints into actual buildings. These companies focus on project execution and do not involve land development and sales. Representative stocks include Runhong (2597.TW), Daxin Gong (2535.TW), Genji (2546.TW), etc.

Real Estate Development Camp covers the entire industry chain from land development, design, construction to sales. These companies have a broad scope of operations, often managing multiple segments simultaneously. Typical stocks include Huagu (2548.TW), Zongtai (3056.TW), Huangxiang (2545.TW), Yaxin (5213.TW), etc.

Taiwan Construction Stock Rankings: Who Are the Winners?

Based on recent performance and fundamentals, the Taiwan construction stocks are ranked as follows:

) Three Benchmark Stocks Breakdown

Huagu (2548.TW) Leading the Rankings

Huagu is involved in commercial office buildings, residential projects, office leasing, and interior decoration. Taiwan’s economic outlook in 2024 is optimistic, with government policies like “New Qing’an Housing Loan” stimulating home purchases, boosting the housing market activity. Huagu is optimistic about its development over the next 1-2 years given the favorable market environment.

In terms of stock price, Huagu rose from NT$82 at the end of February to over NT$170, doubling in value with impressive performance.

Changhong (5534.TW) Accelerating Performance

Changhong is expected to reach a peak in completed and handed-over units this year, with seven new projects successfully completed, pushing annual revenue toward NT$10 billion. In 2023, revenue was NT$9.845 billion, with a cash dividend of NT$5.5, representing an 87% payout ratio and a cash yield of 4.3%. The company has over NT$150 billion in ongoing projects, supporting future performance. Its stock price has increased over 70% since February.

Xingfufa (2542) Accelerating Expansion

Xingfufa, a well-known domestic developer, continues to acquire land and push projects in seven key areas, covering commercial real estate. The company forecasts that the completed projects over the next 4-5 years will total NT$448.5 billion, with annual revenue increasing from next year. Its stock price has surged over 50% in three months, reaching a historic high.

US Construction Stocks: International Perspective

The US government is investing $1 trillion in infrastructure upgrades, creating long-term opportunities for related companies. Major US construction stocks include:

Caterpillar (NYSE: CAT) Global Leader

Caterpillar is the world’s largest manufacturer of construction and mining equipment. Increasing construction demand directly benefits the company, creating a virtuous cycle of heavy equipment sales and raw material demand. Its service and spare parts sales in the fiscal year reach billions of dollars.

In 2023, sales revenue was $67.1 billion, up 13% year-over-year; operating profit margin was 19.3%, up 6 percentage points from the previous year; EPS was $20.12, up 37% YoY.

Nucor (NYSE: NUE) Benchmark for Steel Efficiency

Steel is a fundamental raw material for heavy construction. Nucor revolutionized steelmaking in the 1960s by using scrap melting instead of traditional blast furnaces, gaining significant cost advantages. As one of the largest US steel producers, it maintained profitability even during demand downturns.

In FY2023, net profit was $4.525 billion (down 40.27% YoY); operating revenue was $34.714 billion (down 16.38% YoY); basic EPS was $18.12.

United Rentals (NYSE: URI) Stable Demand

North America’s largest equipment rental company, with over 1,000 branches serving construction, utilities, and other markets. Over the past decade, revenue grew at a CAGR of 14%, EPS increased by 28%, demonstrating strong resilience amid market fluctuations.

In FY2023, net profit was $2.1 billion (up 51.9% YoY); operating revenue was $11.64 billion (up 19.8% YoY).

What Is the Investment Value of Construction Stocks Ranking?

Construction stocks are closely linked to economic growth and perform well during urbanization acceleration or infrastructure cycles. Compared to other sectors, high-quality stocks in the construction ranking have clear advantages:

Strong Dividend Appeal — Construction stocks generally offer attractive yields, suitable for investors seeking stable cash flow.

Inflation Hedge — Housing prices and rents tend to rise in inflationary environments, giving construction stocks defensive qualities.

Growth Potential — The housing market rebound directly drives revenue and profit growth, with clear upside potential for stock prices.

Catalysts for the 2024 Construction Stock Rankings

Housing Market Reversal — Taiwan’s residential transaction volume in Q1 2024 increased by 28.3% YoY, with house prices remaining high, boosting revenue and profit expectations for construction companies.

Policy Support — Incentive policies like “New Qing’an” stimulate housing demand. Although the government aims to curb speculation, the long-term impact on investors is limited.

Valuation Recovery Opportunities — Construction stocks suffered heavy sell-offs in late 2022, with P/E ratios falling to lows. In 2024, many stocks posted strong financial results, and with pre-sale housing deliveries and optimistic earnings forecasts, stock prices experienced significant gains.

Risks to Watch in Construction Stock Investment

Housing Cycle Risks — Changes in supply and demand, policy adjustments, and increased competition can impact individual stocks.

Policy Change Risks — Measures like purchase restrictions, loan limits, and land policy adjustments may alter housing supply-demand dynamics, threatening the sector.

Operational Risks — Project delays, cost overruns, and cash flow issues can lead to performance declines.

Financial Risks — Excessive debt and insufficient repayment capacity may trigger financial instability.

Effective risk mitigation includes diversification, closely monitoring policy changes and company financials, and establishing reasonable risk control plans.