FTSE 100 value: this construction stock has risen 29% in 6 months. Would I buy?

Finding value in the FTSE 100 (INDEXFTSE:UKX) can be hard. I think the building sector shows signs of resilience, but are construction stocks a good buy?

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Shortages of building materials have been a common complaint in recent months as the pandemic hampers construction and creates supply chain disruption. Initially, FTSE 100 building supply firm CRH (LSE:CRH) appeared to be in big trouble. Its share price collapsed over 50% in the March stock market crash. But it’s since made a dramatic recovery, and now the CRH share price is close to what it was at the start of the year.

Construction stocks bounce back

CRH has operations in the US, Europe and Australia, and each shows signs of recovery. As countries slip into a Covid-19-induced recession, governments are desperately looking for ways to claw their way out of the misery. One tried-and-true tradition of emerging from recession is through invigorating construction projects to improve infrastructure and get citizens working again. Governments around the world are already saying they want this to happen, and construction workers are being encouraged to keep working even in areas where stay-at-home advisories are in place. In the US, construction is considered a critical industry and therefore hasn’t been impacted as badly as other sectors.

In the first half of 2020, CRH’s profit and revenue declined. Its revenue fell 3% and adjusted profit fell 28%. The adjusted profit drop was mainly because 2019 saw large profits from company divestments.

CRH is no stranger to acquisitions and is looking to expand its presence in Australia. Covid-19 is creating a buyers’ market, so if the FTSE 100 giant makes acquisitions in the next few months, it could pick up some great bargains to complement its business and boost future profitability.

Another reason the CRH share price has bounced back, is thanks to home improvements in America. Residential repair, maintenance and improvement in North America was on a roll at the height of the pandemic, as people at home opted for renovations. This boosted CRH’s building product sales by 2% compared with the first half of 2019.

Future outlook

According to its website, CRH appears to be on a recruiting spree with over 1,500 positions recently listed. This can only be a promising sign. The US is its biggest customer, so the election outcome is a consideration. However, no matter which candidate takes office, construction is likely to take priority and therefore CRH stands to benefit.

Along with manufacturing building supplies, CRH is the number one asphalt producer and paver in North America. It invests in recycled materials to improve its emissions and boost its sustainability efforts. Some of its projects include building parking lots, stadiums, and highways. It’s a Fortune 500 construction stock, employing 79,000 people in 30 countries. It has a £22bn market capitalisation and its price-to-earnings ratio (P/E) is 13. It offers a welcome dividend yield of 2.4% and earnings per share are £2.18.

If we don’t bring the pandemic under control, then that could be detrimental to future profits, but that’s a risk across all markets today.

I think the CRH share price is in an excellent position to keep growing, particularly as its P/E remains reasonable. And as it offers a dividend, I think this makes it a good addition to a long-term investment portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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