U.S. infrastructure is in need of an update, and it’s going to fuel demand for a lot of cement.
The American Society of Civil Engineers projects that the country needs $2.6 trillion over the next decade to repair failing bridges, crumbling roads, and aging dams. The society estimates that more than 40% of public roadways are in poor or mediocre condition, and 42% of U.S. bridges are at least 50 years old.
Investors have seen construction stocks and infrastructure stocks trade up and down in recent years following talk of action from Washington, D.C. Late last year, lawmakers agreed on a plan to spend an additional $550 billion on infrastructure projects over the next five years. Given the condition of some roads, there will be demand for construction materials for years to come.
It’s hard to predict which individual projects might get funded, but we know spending on construction and infrastructure is going up. For investors, cement stocks are a good way to negate project-specific uncertainty and take advantage of the trend because it’s a raw material that will be in demand, no matter what is prioritized.
What do rising rates mean for cement stocks?
Investors are getting nervous about interest rates since the Federal Reserve Board has telegraphed multiple hikes in 2022. If the Fed does move aggressively, it could cause some near-term weakness for cement stocks.
A lot of cement goes into construction projects, particularly in housing. In a rising interest rate environment, it becomes harder for homebuyers to finance new purchases, which can lead to a fall in demand and a subsequent decline in the need for raw materials such as cement.
No two rate cycles are the same. In this case, it can be argued there is enough demand for homes that housing stocks should hold up and demand for materials like cement will be stable. But investors should watch closely to see how the Fed’s actions affect the industry.
Top cement stocks
For the purposes of this list, we are differentiating between concrete -- the finished product used for home foundations, roads, and bridges -- and cement, which is the mixture of minerals combined with water and aggregates to make concrete. Think of this as a list of companies that make those raw materials, not the companies that mix them together and sell concrete.
| Company | Market Capitalization | Description |
|---|---|---|
| CRH (NYSE:CRH) | $34.19 billion | A world leader in basic materials and one of the most active consolidators in the industry. |
| Vulcan Materials (NYSE:VMC) | $24.08 billion | A U.S.-focused supplier that is heavily reliant on the Sun Belt but is looking to expand nationally. |
| James Hardie Industries (NYSE:JHX) | $15.07 billion | A maker of cement-based building products that are more durable than what they are replacing. |
| Cemex (NYSE:CX) | $7.99 billion | A Mexican company with a global footprint and an emphasis on sustainability. |
| Eagle Materials (NYSE:EXP) | $5.08 billion | A supplier of construction products, including cement, primarily to the U.S. residential market. |
| Loma Negra (NYSE:LOMA) | $1.22 billion | A Latin American specialist poised to take advantage of that region’s continued development. |
Source: Yahoo! Finance. Data as of March 22, 2022.
CRH
Ireland’s CRH is a world leader in basic materials, supplying building products, aggregates, asphalt, and cement primarily in Europe and North America. The company is also very acquisitive, doing more than a dozen deals in 2020 alone to add assets in new regions while divesting from a similar number of businesses to streamline its portfolio.
CRH gives investors exposure not just to cement demand and U.S. infrastructure spending, but also to the rising demand in emerging markets such as Brazil. As it grows, the company is consolidating its operations by converting 12 North American cement plants and 42 cement terminals acquired in deals under a unified Ash Grove Cement brand.
Vulcan Materials
Vulcan Materials is a U.S.-focused heavyweight that provides aggregates, asphalt, and cement to construction and industrial users located primarily in the U.S. Sun Belt. Although the company has facilities in the Bahamas and Mexico, investors buying into Vulcan today are making a bet on the U.S. market rather than on global demand.
Vulcan still sees opportunities to grow in its home market. Last year, the company bought U.S. Concrete (NASDAQ:USCR) for $1.3 billion to expand its footprint in Texas and the northeastern U.S.
James Hardie Industries
James Hardie is perhaps best known for its Hardie Board products, which are fiber cement building materials that are durable replacements for exterior wood and other construction materials. The Ireland-based company makes a range of finished cement products used in commercial and housing construction, including exterior siding, wallboards, floors, trim, fencing, and decking.
Hardie isn’t the same roads-and-bridges play as some of these companies, but it has expanded the addressable market for cement products and should benefit from an eco-friendly push to use new materials and make projects more durable.
Cemex
Cemex is Latin America’s largest supplier of cement and sells a range of basic materials and aggregates throughout its native Mexico, the U.S., and around the world. Cemex is one of the best cement stocks to buy for true global exposure, with operations spanning more than 50 countries throughout Africa, the Middle East, and Asia.
Cemex has also been a leader in terms of sustainability, pledging to reduce its carbon dioxide emissions 40% by 2030 compared to 1990 levels and to reduce dust emissions by 95%. Its efforts should help it to win business from all-important government customers trying to balance the need for construction with climate priorities.
Eagle Materials
Eagle Materials sells cement as well as a wide range of other building materials, including gypsum wallboard and aggregates, and it is focused on the U.S. construction market. The company manufactures and distributes its products from more than 70 facilities located in the U.S.
Eagle doesn’t offer the same geographic or product diversification as some of the other companies on this list, but it has a significant business selling to the red-hot housing market.
Loma Negra
Loma Negra is smaller than the others on this list and is focused primarily on the market in its native Argentina and in neighboring countries. The company produces cement, aggregates, lime, and ready-made concrete mixtures for construction companies and industrial users.
Loma is more of a pure-play investment in emerging markets, but demand from South America should significantly increase in the years to come as local economies continue to develop.
Are cement stocks right for you?
Some investors tend to shy away from stock market sectors such as cement, fearing the commodity nature of the product makes it too cyclical. But, given the need for increased infrastructure spending to replace aging roads and bridges, plus the substantial demand for new housing over the next decade, it appears we are in the early stages of a long-term supercycle for cement demand.
Even if it is cyclical, cement has so many different end users that demand is unlikely to drop off should one particular segment of users hit hard times. Cement stocks aren’t likely to ever be confused with high-growth tech stocks, but they offer greater stability and predictability that can help balance out a diversified portfolio.
