Sunday, August 24, 2014

Investing in the Building Products Industry

At first glance, the building products industry looks like one of easiest investment sectors to analyze. It's usually seen as a highly cyclical industry whose fortunes are tied to construction activity and the economy in general. That's generally true, but investment in construction projects isn't always going to align perfectly with economic growth. Furthermore, the industry is subdivided between residential and non-residential construction, private and public investment, and new-build and remodeling activity. Growth rates can fluctuate across these divisions, so it's essential to know what kind of exposure a stock has.

For example, large companies with building products divisions, such as United Technologies (NYSE: UTX  ) , Ingersoll-Rand (NYSE: IR  ) , and Johnson Controls (NYSE: JCI  ) , have broad-based exposure to construction activity. Meanwhile, smaller companies, such as Masco (NYSE: MAS  ) (cabinets and home products), Lennox International (NYSE: LII  ) (heating and ventilation and air conditioning, or HVAC), and Armstrong World Industries (NYSE: AWI  ) (flooring and ceilings) will be more exposed to specific industry drivers. It's time to look more closely at this multilayered industry.