This building materials ASX 200 share is a buy (not James Hardie): expert

Sure, interest rates are rising sharply and that's a negative for such companies. But eventually that will stop.

| More on:
Engineer smiling with a tablet in his hand.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Industrials Shares

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Earnings Results

Goodman shares fall on Q1 update

How did the company perform in the first quarter? Let's find out.

Read more »

Woman and man calculating a dividend yield.
Industrials Shares

This ASX 200 insider just sold off $3.65 million in company shares

Should Brambles investors be worried about this huge CEO stock sale?

Read more »

A middle aged man with a moustache and wearing casual clothes holds a plumbing plunger in one hand a a piece of toilet pipe in the other with an exasperated look on his face.
Earnings Results

2 large-cap ASX industrial shares diving on quarterly updates

The market has spoken today.

Read more »

Agricultural ASX share price on watch represented by farmer in field looking at tablet computer.
Industrials Shares

How a fading El Nino makes this ASX 200 stock a buy

Tech improvements and favourable weather could drive this ASX 200 stock to new heights.

Read more »

Lines of codes and graphs in the background with woman looking at laptop trying to understand the data.
Industrials Shares

Here's why this $41 billion ASX 200 stock is falling today

This top income stock has started the financial year positively but the market isn't overly impressed.

Read more »

Logistic workers sitting amid pallets and stock in a warehouse.
Industrials Shares

Up 40% in 2024, this ASX 200 stock could 'deliver double-digit earnings growth in the coming years'

A fundie thinks this global stock could achieve good growth.

Read more »

Rubbish and waste around a green recycling logo.
Industrials Shares

'Strong outlook': Buy these ASX 200 industrial shares with healthy growth forecasts

These stocks have been backed by experts.

Read more »

drone stuck in a tree representing crashing Aerometrix share price
Industrials Shares

Why has the DroneShield share price crashed 46% since July?

The defence industry is climbing, but DroneShield has been left on the ground.

Read more »