Shares in building materials companies CSR Limited (ASX: CSR), Boral Limited (ASX: BLD) and Brickworks Limited (ASX: BKW) have gained 62.5%, 24.5% and 16.3% over the past 12 months which simply blitzes the gain of 10.6% produced by the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).
Last Friday’s release by the Australian Bureau of Statistics (ABS) of Housing Finance figures for May suggests the good times are set to roll-on for housing-exposed companies and this could well translate into positive momentum for building materials stocks. However, investors do need to take care as substantial industry growth has already been factored into the share prices of many housing-related stocks.
Here are three reasons why the outlook for companies in this industry remains positive.
- ABS data showed a positive trend estimate over May with the total value of dwelling commitments rising 0.2% to $27.6 billion. The Chief Economist of the Housing Industry Association stated that the data was, “an encouraging forward sign for new home building.”
- Interest rates are at historically low levels and set to remain so for the foreseeable future. This is an obvious benefit to both private and commercial borrowers looking to fund a construction project and sets the scene for activity to remain elevated.
- Rocketing prices and clearance rates for home sales are making new home building, alterations and additions all increasingly appealing options. The alterations and additions market hit a decade low during 2013, which is a good sign for contrarian investors looking for further evidence of an upswing.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
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