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3 stocks to ride the housing construction surge and build up your returns

Some of the largest housing construction companies are hitting new record highs in pre-sales revenue right now. That basically covers houses and units that are in contract for building and will be completed over the near future.

With such large numbers, building materials companies will see increased business, especially the well-known brand producers. As the builders are getting ready and putting in their inventory orders for construction, these three companies should see their sales orders grow from this surge in housing.

Brickworks Limited (ASX: BKW) is a clay and concrete building materials producer which also develops property and makes investments. It has a long history of strong total shareholder returns and thanks to the rising housing market, its products are in demand.

In FY2013, underlying net profit was up 26.9% to $100 million. The company noted in its AGM presentation that forecasts from the Housing Industry Association (HIA) and BIS Schrapnel for detached housing starts are for a rise of 15%-20% over the next 3-4 years.

That is good for its well-known brands such as Austral Bricks and Bristle Roofing tiles.

CSR Limited (ASX: CSR) produces plasterboard, roof tiles, glass and aluminium products. It has seen its earnings and share price steadily rise over the past 12 months as well.

In its report for the six months ended 30 September 2013, net profit was up from a combination of lower production costs, higher aluminium sales prices and property investments. It stated its building materials sales volumes hadn’t risen sharply, but expected more demand as lower interest rates drive housing construction.

For full year 2014, the company expects its underlying net profit after tax to be toward the upper end of $51 -$70 million. FY2013 underlying net profit was $32.7 million.

Reece Australia Ltd (ASX: REH) supplies bathroom and plumbing products through its over 450 trading outlets in Australia and New Zealand.

Sales have steadily increased over the past 10 years and its strong financials attest to the durable competitive advantage it has. Return on equity and return on investment are both about 16%.

In January it announced the acquisition of the Actrol Group, which specialises in air conditioning and refrigeration. This gives the company an opportunity to establish a presence in those service industries, which complement its current product range. It will leverage its trade distribution experience in the new subsidiaries and take advantage of potential cross-selling.

Foolish takeaway

Even quality companies in a cyclical industry go through ups and downs. You want to buy into them when they’re relatively low in their cycle to get the full benefit of a number of years in housing growth.

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