Boost in Non-Residential Construction Keeps Us Bullish on Three Positions
Infrastructure spending should re-accelerate in the coming months, warranting additional shares in two pieces of our portfolio.
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* April construction spending was impacted by weather, coming in softer than expected.
* Non-residential construction rose 11.5% year over year, continuing the string of double-digit gains.
* The pullback in United Rentals and Vulcan Materials shares brings new opportunities for newer members, especially as spring and summer weather come into play.
Construction spending during April 2024 was estimated at a seasonally-adjusted annual rate of $2,099.0 billion, 0.1% below the revised March estimate of $2,101.5 billion. On a year-over-year basis, total construction spending for the month rose 10%, continuing the strong double-digit growth that has been led by non-residential construction. Total non-residential construction spending, up 11.5% year over year, reflects continued spending tied to infrastructure stimulus spending out of Washington. We see that in the 16.4% jump in highway and street construction spending versus year-ago levels, 14.8% for power and other double-digit gains.
In response to the softer-than-expected April headline figure, we are seeing our share of United Rentals URI and Vulcan Materials VMC trade off, but as we review the April data, we have to acknowledge the April weather that included severe storms, flooding and even snow across the country. Such weather impacts construction activity, so as we leave it behind we should see a pickup in the data for May and the seasonally-stronger summer months. That, along with the flow of CHIPs Act dollars, should point to stronger spending in 2H 2024, which keeps us bullish on URI, VMC and Waste Management WM shares.
Should URI shares pull back below the $630 level, we would see enough upside to our $750 target to warrant revisiting our Two rating. Our plate is full with the portfolio’s positions for URI and VMC near 3.6%. However, for those members, underweight URI or VMC shares, current levels are certainly attractive enough to warrant adding some shares.
At the time of publication, TheStreet Pro Portfolio was long URI, VMC and WM.
