S&P/ASX 200 Index (ASX: XJO) shares representing building materials providers are in a bind at the moment.
Interest rates are steeply rising, meaning consumers will have less money for both renovations and constructing new housing.
That logically is not great for businesses that supply construction materials.
So many of those ASX 200 shares have been sold off in recent times, and that perhaps might have opened up a buying opportunity.
After all, if sentiment is so weak now, eventually interest rates will stop rising and activity will normalise.
Several experts have tipped fibre cement sheeting provider James Hardie Industries plc (ASX: JHX) as a prudent pick-up in recent times.
But a similar ASX company not often talked about is CSR Limited (ASX: CSR).
This week Fairmont Equities managing director Michael Gable explained why he believes CSR is ripe for buying at the moment.
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Why ASX 200 share CSR can fight through lean times
Gable admitted there are risks for the building products business, but plenty of factors abound that could offset the impact of rising interest rates.
"On the positive side, the rate of decline in Australian housing starts (>20%) is unlikely to be as much as the declines evident in past cycles of -25% to -45%," he wrote on the Fairmont blog.
"One of the factors supporting the lower-than-historical rate of decline is household formation… A recovery is expected in FY25, as population growth returns to full capacity."
Management has noted how "multi-family" and " non-residential" construction seemed to be picking up after postponements though the early years of the COVID-19 pandemic.
"Recovery in these volumes may help soften the anticipated impact from the decline in detached housing in FY24."
Gable added that a lesser-known business arm of the ASX 200 share, the property division, is going gangbusters.
"The company has 457ha of existing land holdings that are leveraged to key western Sydney locations that are set to benefit from structural tailwinds," he said.
"These include a new Western Sydney Airport, surging e-commerce activity and strong demand for distribution centres."
This real estate business is increasingly holding up CSR's stock price.
"While there is downside risk to the valuation for the building products division, overall group valuation is likely to be supported by the property division, which is now comprising a greater portion of the group's valuation (currently accounting for ~1/3rd of the group enterprise value)."
The share price could be at the start of a rise
From the start of the year to June, CSR shares sank as much as 34%. But over the past couple of months, the stock has rallied by 20%.
Gable feels like it's on a roll now.
"It broke higher in mid-July on good volume," he said.
"So far we have CSR respecting the breakout as it continues to climb higher. Momentum looks good and the share price is likely to continue rallying."
CSR will not report its numbers this month as its financial year ends in March.
