ROPERTY CONSTRUCTION STOCKS.
Written by: Robert and Russell Markham
The property construction industry is under pressure at present. Falling incomes, falling appetite for investment properties and falling wages has impacted the industry. Also, consider some of the key property stocks listed on the ASX do not just entail exposure to the Australia market.
For example, James Hardie (JHX.AX) has exposure to the US and European Markets. Boral (BLD.AX) has exposure to the US market. It is fair to say that property construction is facing headwinds globally and as such, the ASX listed property construction companies with exposure offshore and those relating to Australia will come under pressure. Another significant company in the construction game is Adelaide Brighton (ABC.AX). Not to be confused with the ABC channel! ABC.AX has around 30% exposure (per UBS analyst James Brennan-Chong back in January 2019) to residential housing related activity.
One thing is certain, in the years to follow, the Australian population will continue to grow. While border closures and travel restrictions globally have provided significant impact, this will not last forever and, at some point, things will return to normal. In normal circumstances, demand for property has typically remained strong, along with demand for property investment. When demand strengthens again, property construction/development businesses will no doubt have plenty of work and, in turn, this will be reflected in their share prices. But for now, that is not the case and we have seen a significant pullback in the level of construction taking place.
One only needs to look at the likes of MGR.AX (down 34%), LLC.AX (down 31%) and ABC.AX (down 24%) from 31st December 2019 through to 4th September this year. These are significant falls! Is now the time to buy these property construction companies when they remain heavily sold down? Are these bargain prices? The answer to that will depend on Market Timing and the overall health of the given stocks you are looking at. Remember, at VectorVest, we advocate that you: buy rising shares in rising markets. Buy shares where the earnings are tracking upwards…avoid buying shares with falling earnings.
MGR.AX, LLC.AX and ABC.AX all have falling earnings! Furthermore, as you can appreciate, the share prices have all been in a down trend on average over the last 12 months. ABC.AX has started to develop a bit of an uptrend at present but with the earnings track record over the last 12 months…you can find much better earnings profiles than ABC.AX. To speed things up and to assist you to be able to check in on the key property construction companies, we have put a list together for you per our WatchLists.
You can find the Property Construction Companies WatchList located per the Viewers Tab, under WatchLists, housed under the Overview WatchLists Group. We have put in a total of 13 construction stocks for you to look at (the video that follows will show you exactly how to find this WatchList). You can always make a copy of this WatchList (right click on the WatchList and select Copy) and once you have a copy made, you can modify the list by adding or removing stocks.
As to the question of whether it is worth picking up any construction stocks right now …I leave that to the power of VectorVest graphs. VectorVest tells me exactly what I need to know in a few seconds which we will cover in the video.
Our overall findings are as follows:
• JHX.AX was the only stock that stood out…but it was not perfect.
• The overall earnings across the construction companies is falling heavily.
• The technicals across the key construction is showing some resilience.
• Sales across the key construction stocks have taken a significant fall since Covid 19 – the biggest drop in sales since 2015.
• There are currently much better earnings profiles to be found outside the construction industry!
Click here to see the video for this week on our analysis of the key construction stocks.