One expert is urging investors go "long and bullish" on an ASX stock that's already rocketed this week.
Shaw and Partners portfolio manager James Gerrish said his Market Matters team likes the look of construction materials supplier James Hardie Industries plc (ASX: JHX).
The stock soared 8.3% on Tuesday after its fourth-quarter results "pleased a nervous market".
"Encouragingly its 1Q24 guidance was a clear beat – at the midpoint they have guided to 1Q profit of US$155 million vs US$137 million consensus — i.e. 13% above," Gerrish said in his newsletter.
"In our opinion, the key positive was US margins remained solid and their guidance implies this will continue which will drive earnings upgrades."
Amid dark clouds for the economy, James Hardie showed off its pricing power by pulling off an amazing magic trick.
"While James Hardie has experienced a drop in sales volumes as the building sector struggles, the company's ability to increase prices has seen revenues actually increase," said Gerrish.
"The volume of plasterboard/cladding sold in Australia & New Zealand fell by 10%, but revenue increased by 2% as price increases were pushed onto customers in the March quarter."
Image source: Getty Images
Grab James Hardie shares while they're cheap
With consumers dealing with interest rates more than three percentage points higher than just a year ago, real estate prices have spiralled down and the construction industry is feeling the pressure.
This presents a tempting buying opportunity, according to Gerrish.
"With plenty of bad news built into James Hardie's share price after it halved from its late 2021 high, Market Matters remains optimistic towards Hardies," he said.
"The company is operating well in a tough environment hence when the construction sector does show signs of improvement, James Hardie will be very well positioned to benefit."
Within Australia, Gerrish feels like conditions will improve for the company and the wider building industry.
"The government committed to a large immigration push plus, of course, they have a huge rental crisis to address sooner rather than later," he said.
"Although this is unlikely to support the weak construction industry over the coming months, we must be conscious that stocks look at least six months ahead."
Despite the spectacular rise this week, James Hardie shares are still about 35% lower than their December 2021 high.
