Build up your returns with these 3 building materials stocks

Higher building pre-sales and housing finance for construction are pushing up materials demand.

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For the past 12 months to February, the number of lending commitments for homes has been climbing, according to trend estimates from the Australian Bureau of Statistics. Housing finance for new home construction rose the most by percentage, with its trend up 1.8% for the month of February. This estimate goes along with other rising figures for building approvals and completed housing construction.

In February, finance for the purchase of new dwellings was down 1.7%. Seasonally adjusted, the estimate was down 5%. Investment housing rose slightly more in trend estimate than owner-occupied housing, 1.1% and 0.9% respectively.

From the interim reports of some of the housing construction companies, pre-sales commitments have been hitting highs. The combination of signed contract sales and finance for construction are pointing to a sustained pipeline of upcoming home building.

Building materials producers will be selling more products to homebuilders as this trend continues.

Two of the major companies, CSR Limited (ASX: CSR) and Boral Limited (ASX: BLD) have announced they will create a joint venture to combine their east coast brick operations. This would create an entity with more than 50% of the market in some states.

This will generate some savings in production and management, but the biggest reason for the move was the general decline in brick making as more high-rise unit construction has lessened the demand for such materials. The combined business will make existing brick-making operations more cost effective through better coordination and restructuring.

CSR hit a new 52-week high of $3.71 last week and is up about 50% in the last six months. It has a PE around 27 and a dividend yield around 2.0%.

Boral has recently returned to its $5.96 high set in mid-March. Its PE is around 30 and it offers a dividend yield around 2.1%. It is up about 26% in the last six months.

Fibre concrete panelling, wall and cladding materials producer James Hardie Industries plc (ASX: JHX) is continuing its share buyback as its share price has climbed about 39% in the past six months.

Its PE is around 33 and the dividend yield is around 1.6%.

Foolish takeaway

The market has raised their share prices in expectation of near-term sales improvement, but there may yet be a number of years of growth ahead since we are relatively early in the property cycle.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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