Why JP Morgan thinks you should buy James Hardie Industries plc (ASX:JHX)

This could be the time to turn bullish towards James Hardie Industries plc (ASX: JHX) as its share price is underperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), according to JP Morgan.

The broker has upgraded the building materials company to “overweight” yesterday after noting that the stock is trading at a rare discount to the industrials sector and as it expressed confidence in the incoming chief executive Dr Jack Truong.

This is a welcome development for shareholders who have witnessed the stock losing close to 4% over the past month as it shed another 0.7% to $21.07 in morning trade.

But there’s another reason to buy the stock now. James Hardie is hosting an investor tour on September 20 and the broker believes the event could trigger a re-rating in the stock

“James Hardie is trading on a P/E [price-earnings] multiple of 18.5x four-quarter-forward EPS [earnings per share], representing a 13% discount to the S&P/ASX 200 Industrials Index,” said the broker, which has a $23 a share price target.

“We note the stock has traded at an average premium of 35% to this index over the past decade. We believe the current multiple fails to capture the growth prospects for the group.”

JP Morgan isn’t the only one that is feeling upbeat on James Hardie. Macquarie Group Ltd (ASX: MQG) today named James Hardie as one of its two key buy ideas following last month’s reporting season.

Its analysts also noted the de-rating of the stock and pointed out that James Hardie has been able to increase prices by more than the broker was expecting and this is helping to offset rising pulp and freight costs.

“Asia Pacific printed strong earnings. US delivered lighter margins due to higher input costs,” said Macquarie.

“We think the US economic outlook will be supportive and diversification to new geographies and products via Fermacell provide a good platform for growth. Do not see a major shift in strategy with the incoming CEO.”

Macquarie has an “outperform” recommendation on James Hardie with a price target of $26.65 a share.

But this isn’t the only stock in the sector it thinks is attractive. The other stock idea is plumbing solutions group Reliance Worldwide Corporation Ltd (ASX: RWC).

The stock posted a solid full-year result but was punished for its outlook. Macquarie thinks the sell-off is an overreaction as the fundamentals are supportive of future growth.

I would put Boral Limited (ASX: BLD) in the same category too as it is one of my key holdings. What’s also important to point out is that all three stocks will benefit from the slumping Australian dollar, which should provide an additional tailwind this financial year.

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Motley Fool contributor Brendon Lau owns shares of Boral Limited and Macquarie Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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