Construction Sector Investment Guide: Analysis of Leading Companies in Taiwan and the US and Stock Selection Strategies

I. Definition and Classification of Construction Stocks

Construction stocks encompass listed companies involved in building engineering, real estate development, and infrastructure construction. These stocks are generally divided into two main camps.

Engineering Contracting Companies focus on construction execution, responsible for transforming design drawings into actual buildings, with relatively specialized business scopes. In the Taiwan stock market, companies like Zhongrun Hong (2597.TW), Daxin Gong (2535.TW), and Genji (2546.TW) belong to this category.

Integrated Development Companies involve land development, design, construction, and sales across the entire industry chain, with broader operational scopes. Representatives include Huagu (2548.TW), Zongtai (3056.TW), Huangxiang (2545.TW), and Yaxin (5213.TW).

II. Core Analysis of Taiwan Construction Stocks

Currently, high dividend yield targets within Taiwan construction stocks are attracting market attention. According to the latest data, Dali (6177) leads with an estimated dividend yield of 5.99%, EPS of 5.08 NT dollars; Yongxin Construction (5508) has a dividend yield of 5.48%, EPS of 12.55 NT dollars; Huagu (2548) offers a dividend yield of 5.36%, EPS of 12.95 NT dollars.

Huagu Group’s Growth Path

Huagu focuses on commercial office buildings, residential development, and interior decoration. Since early 2024, benefiting from the real estate market rebound and government home-buying policies, Huagu’s stock price has begun a reversal trend. Within just a few months, the stock price has risen from NT$82 to over NT$170, more than doubling. The company remains cautiously optimistic about the next 1-2 years, with increased housing market activity laying a foundation for revenue growth.

Changhong Construction’s Performance Cycle

Changhong is expected to reach a peak in completed and delivered units this year, with seven new projects expected to be completed and recognized. The annual revenue target is set at hundreds of billions NT dollars. In 2023, revenue was NT$9.845 billion, EPS of NT$6.32, with a cash dividend of NT$5.5, and a payout ratio of 87%. The on-hand projects amount to over NT$150 billion, providing stable support for future years. Since the beginning of the year, the stock price has surged over 70%.

Xingfufa’s Expansion Strategy

As a well-known domestic builder, Xingfufa steadily acquires land and develops projects in Taiwan’s seven key regions, with business extending into catering, shopping malls, hotels, and more. The company forecasts that the completed project volume over the next 4-5 years will reach NT$4,485 billion, with recognized revenue expected to increase annually. The stock has performed strongly, with a gain of over 50% in the past three months, setting a new record high.

III. Investment Opportunities in US Construction Stocks

The US government’s infrastructure investment plan commits to investing one trillion USD, creating multiple layers of investment opportunities across the construction industry chain. Compared to the volatility of Taiwan stocks, US construction companies are typically known for stable dividends and slow growth, unlikely to skyrocket in the short term, but more likely to provide shareholders with steady cash returns.

Key Stock Evaluations

Caterpillar (NYSE: CAT), the world’s largest manufacturer of construction and mining equipment, benefits from increased infrastructure demand. In 2023, sales reached $67.1 billion, up 13% year-over-year; operating profit margin was 19.3%, an increase of 600 basis points from the previous year; EPS of $20.12, up 37% YoY. The company also generates significant income through parts sales and financing services.

Nucor (NYSE: NUE), a major US steel producer, reduces production costs through scrap recycling and steelmaking technology. In 2023, net profit was $4.525 billion, with operating revenue of $34.714 billion, EPS of $18.12. The company maintained profitability even amid demand downturns.

United Rentals (NYSE: URI), North America’s largest equipment rental service provider, with over 1,000 branches. In 2023, net profit was $2.1 billion, up 51.9% YoY; operating revenue was $11.64 billion, up 19.8%. The compound annual growth rate over the past decade is 14%.

IV. Core Advantages of Investing in Construction Stocks

Construction stocks are closely linked to economic prosperity and building activity. Compared to other sectors, construction stocks exhibit three main attractions:

High Dividend Yield: Most construction companies have stable cash flows, with dividend yields ranging from 3% to 6%, suitable for investors seeking stable income.

Inflation Hedge: In an inflationary environment, rising property prices and rents typically boost construction stocks, offering certain asset protection features.

Economic Momentum: The rebound in the real estate market directly enhances revenue and profit expectations for construction companies, driving stock prices higher.

V. Driving Factors for Taiwan and US Construction Stocks in 2024

In Taiwan, the first quarter of 2024 saw residential transaction volumes increase by 28.3% YoY, with housing prices remaining high. The government’s “New Green Card” home-buying policy further stimulates market demand. Compared to the sluggish second half of 2022, the P/E ratios of construction stocks are now at historic lows, with many companies reporting impressive financial results. The pre-sale housing wave is arriving, boosting investor confidence.

In the US, infrastructure investment plans continue to advance, providing long-term demand support for building materials, equipment manufacturing, and leasing companies.

VI. Risks to Consider When Investing in Construction Stocks

Although the outlook for construction stocks is optimistic, investors should be aware of the following risks:

Housing Policy Changes: Government restrictions on purchases, loans, or land policies may alter supply and demand dynamics, impacting construction stock performance.

Rising Costs: Increasing prices for building materials and labor costs compress profit margins on public projects.

Operational Risks: Project delays, cost overruns, and liquidity issues can lead to performance declines.

Financial Leverage Risks: Excessive debt levels and insufficient repayment capacity pose potential hazards.

Short-term Correction Risks: Some construction stocks have surged over 50% this year, with technical correction risks present.

Investors should adopt diversified allocations and dynamic risk monitoring, maintaining a rational view of the medium- and long-term opportunities in construction stocks.