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CSR, James Hardie and Fletcher Building: 3 stocks for housing growth

Building materials producer and supplier CSR (ASX: CSR) announced in its 2013 half-year report ending 30 September that revenues of $877.1 million were only up 2% from the corresponding 2012 half year, however earnings before interest, tax, depreciation and amortisation was up 21%.

This surprising figure was due to improving profit margins and overhead restraints. Its net profit after tax was $36.2 million, up 92% from $18.9 million. 2012 was a low point in earnings after netting as much as $73.8 million in the 2010 corresponding half year.

It acknowledged the building approvals statistics increases of late, but sales volumes of building materials hadn’t increased significantly because, according to the company, the majority of the recent housing growth is in units rather than houses, and that has a longer lag between approvals and materials orders.

Despite that, its share price has been on a tear upwards since July 2012, when it bottomed out at about $1.20, with this week seeing a new yearly high of $2.44. It is already a little more than 100% up, and the housing market is just getting started.

Here are two more building materials companies’ recent performance and outlooks.

James Hardie (ASX: JHX), the world’s leader in fibre cement building materials,  is expected to release its second quarter 2014 results today. Of its sales, 69% are in the US, so with the housing recovery going on there, the company stated last month that it is expecting the US earnings before interest and tax (EBIT) margin to be over 20%.

The company projects that Australian housing will be subdued for FY2014 until more property buyers turn to new home purchases.

Fletcher Building (ASX: FBU) noted in October that it was not seeing any great changes in sales volumes in Australia, where it has about 42% of its revenue, and looked towards a relatively flat market for the rest of the financial year. Of its sales, 45% come from New Zealand, and those are being adversely affected by a strong NZ dollar.

The market has shrugged off that business outlook by holding relatively firm to its $8.50 share price level, up 24.6% in the last five months.

Foolish takeaway

This is why Foolish writers like me advise investors to really learn about the company and its industry — so that you can detect when a turn in fortune is about to happen in an industry. In addition, being diversified means only having one or two stocks, hopefully the best, from an industry to spread the risk. As the building materials market begins to firm up, you still have time to see which best fits your goals.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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