Highlights:
- Some ASX building materials shares could outperform in 2022, according to JPMorgan
- The macro backdrop for the sector is positive despite headwinds from supply chain disruption and a cooling property market
- The broker says the best buys are CSR, James Hardie, and Adbri
The CSR Limited (ASX: CSR) share price is outperforming today after JPMorgan listed it as one of its top buy ideas for 2022.
Shares in the building materials supplier are 2.19% higher at $5.60 just before market close. In comparison, the S&P/ASX 200 Index (ASX: XJO) is struggling to reach breakeven.
But CSR could keep outperforming the broader market this year thanks to a supporting macro backdrop, according to JPMorgan.
Headwinds and risks are overplayed
This isn't to say the sector is without risks. The broker points out COVID-19 supply chain disruptions are weighing on ASX building material shares and costs pressures are rising.
The housing market is also showing signs of cooling and these headwinds could take the gloss off the upcoming ASX reporting season.
CSR share price trading at a discount
But, according to the broker, much of the bad news may be already priced into shares like CSR. The sector is trading at a discount to historical averages if you exclude the Boral Limited (ASX: BLD) share price and the Reece Ltd (ASX: REH) share price.
"The recent pullback in share prices has seen relative value step back into the sector," JPMorgan said.
"Our coverage is currently trading on a weighted average [price to earnings ratio] PER of 17.6x (ex. BLD and REH), a -9% discount to the ASX 200 Industrials, below the LT average premium of 8%.
"With earnings set to improve in 2022 and undemanding multiples, this provides an attractive buying opportunity in our view."
CSR share price among JPMorgan's top ideas
According to the investment bank's analysts, the type of ASX shares that investors should be targeting are those with a strong track record of execution. Further, ASX shares with relative pricing power and local manufacturing are best placed to outperform, JPMorgan said.
This means companies offering lightweight building products have an edge in this environment. This is why the broker believes that the CSR share price is a lower-risk proposition.
Best ASX shares to buy in 2022
But CSR isn't the only one on JPMorgan's top buy list for the sector. The broker also has an "overweight" recommendation on the James Hardie Industries plc (ASX: JHX) share price due to its exposure to the US housing market.
"Despite a strong 2021, US housing remains our preferred exposure for 2022, given historically low levels of housing stock and pent up demand," said JPMorgan.
Finally, the Adbri Ltd (ASX: ABC) share price is also on the broker's top buy list. JPMorgan believes too much bad news is priced into the shares in the cement manufacturer and the broker says it is primed for a re-rating.
