Some stocks are gravity-defying. Even their drops are short-lived and great buying opportunities. I think one of them is CRH (LSE: CRH). The FTSE 100 construction company is 44% up from this time last year and has more than doubled since the market crash of March 2020.
And I think it can rise more, in fact, it’s one of my top picks for this year for three reasons.
#1. CRH’s trading update is even more positive than it appears
It just posted a positive trading update. It has been bumped up by a weak base as the pandemic took hold last year last year. As a result, the company says, “we expect group EBITDA for the… first half of the year to be well ahead of the first half of 2020”.
Its revenue numbers are growing too. For the first quarter of 2021, it reported a 3% increase in like-for-like sales. While some base effect would have played a part, I like that it has grown despite a “seasonally quiet” period and disruptions to its materials’ business because of poor weather.
CRH’s materials business includes extraction and processing of aggregates used in construction, like granite, limestone and sandstone. This segment also extends to the production of products like asphalt and ready-mix concrete. The segment is significant, accounting for 74% of the company’s revenues last year.
The Americas materials segment, which accounts for 55% of the total materials business, declined by 1% compared to last year because of the weather disruptions.
However, this was more than made up for by a 12% revenue increase in its buildings products segment, which includes a range of products from glazing to drainage pipes. I also like that this segment saw a jump only because of residential construction and despite commercial projects showing lower activity.
In effect, what we have here is a company that has managed to grow despite a quiet season, weather disruptions impacting its biggest revenue source and lower non-residential construction activity.
#2. Less pricey than other FTSE 100 stocks
Despite this and its consistent price rise, CRH’s price-to-earnings (P/E) ratio is relatively contained at around 33 times. Lloyds Bank, in comparison, which has had a rough year, has a higher P/E of almost 37 times.
#3. The US market can boom
Moreover, I think its share price can rise further going by the outlook for construction. Most of the company’s business is derived from the US. As it is, the outlook for the US economy is optimistic. And the government’s infrastructure plan will only give construction an extra boost.
A risk to consider
However, the best laid plans can go wrong and I need to keep that in mind when considering the risks to CRH or any other share. Construction is a particularly vulnerable industry, as business demand has already been low and can continue to remain so if work-from-home continues to be popular. I reckon this could also impact its materials business.
The verdict
On the whole though, I think if CRH has remained financially healthy and growing through 2020, this year will be a smaller challenge for it. I would buy this FTSE 100 stock.
