Growing fears of a looming recession have investors looking at various alternatives on the stock market, however, the Canadian hardware and building materials segment looks to present a slight upside this year on the back of steady domestic growth.
Despite the recent economic jitters, on the back of aggressive monetary tightening, the Canadian economy started the year off relatively strong, with January and February GPD gaining 0.2% and 0.1%, respectively.
In recent preliminary estimates by Statistics Canada, analysts predicted that growth is likely to be down 0.1% for March, but further clarification on this has yet to be publicly announced.
While economic activity has somewhat stalled as consumers tighten their purse strings, and the housing market expects relatively moderate growth, the hardware and building materials segment, including construction, is expected to register more than USD$ 27.80 billion in revenue this year.
Historic forecast indications by the Ireland-based Research and Markets firm showed that these industries registered an annual 6.1% and an expected 4% growth in 2021 and 2022, respectively.
As the central bank continues to fight off stubbornly high inflation with continuous interest rate hikes, and the real estate market steadily stabilizes itself, a possible soft landing - which many investors and economists are hoping for - could help the country slip past the tipping point of potentially falling into an economic recession.
Hardware and Building Material Stocks To Watch
With many investors now actively diversifying their portfolios across several market segments, cementing themselves in industries that could present upside against the backdrop of a bigger economic downturn, a handful of hardware and building material companies could potentially be a key ingredient for their portfolio cushioning.
Interfor Corporation
Considered to be one of the biggest lumber and forestry companies in the world, Interfor Corporation (TSE: IFP) reported slight improvements in their recent Q1 2023 earnings report, with a net loss of $0.80 per share, compared to $1.40 per share in Q4 2022.
With roughly 60% of operations within the United States, Interfor has managed to broaden its product options, with structural and appearance lumber products being two of its key business components.
Although the company has seen a slight decline in demand, due to elevated interest rates, and cooling economic activity, stock performance remains relatively steady, as year-to-date (YTD) prices have climbed by 5.78%.
For its balance sheet, revenues climbed by a robust 39%, totaling more than CAD$4.58 billion for the full financial year ending 2022. There is however more upside to Interfor, the company has heavily invested itself to improve environmental, social, and governance practices, the three key elements of ESG-centered portfolios.
Stelco Holdings Incorporated
Known as the Steel Company of Canada, Stelco Holdings (TSE: STLC) has a long-established reputation, with more than 100 years of experience in the industry.
The company's three largest servicing segments include the automotive, energy, and construction industries, giving them a diversified portfolio of clients which they have established lasting relationships with.
Based on their Q1 2023 report, the company saw its revenue decline by 24% from Q1 2022 but managed to 4% from Q4 2022. There was a 2% margin change in reported revenues, with USD$ 687 million in Q1 2023, down 24% from Q1 2022. On the upside, however, the company reported an 11% shipping volume increase for Q1 compared to Q1 2022, and 4% up from Q4 2022.
Stock-wise, there have been some fluctuations in price performance over recent months, with YTD prices up slightly by 0.022%. Looking forward, STLC currently holds a dividend yield of 3.77%, with a pay-to-earnings ratio (P/E) of 4.37.
While some may have doubts about STLC, seeing that the company has exchanged ownership over the last two decades, Stelco has solidified itself with global industries that are continuously experiencing positive and healthy growth against wider economic uncertainty.
Stella-Jones Incorporated
Stella-Jones (TSE: SJ) is a well-known supplier and manufacturer of lumber products, servicing the industrial, residential, and public infrastructure sectors.
The company holds perhaps one of the healthiest balance sheets in terms of recent performance and forward-looking guidance based on its Q1 2023 quarterly reports. Both quarterly revenue and net income jumped by 9.06% and 30.43%, respectively. Their net profit margin also increased by a robust 19% following its recent report.
SJ YTD price performance has also been trending upwards by 23.90%, while full one-year performance has already seen the stocks add 77% value. The board of directors recently approved the payment of quarterly dividends of $0.23 per common share.
The P/E ratio currently stands at 14.60, while it has a steady dividend yield of 1.50%.
Going forward, the company could see further potential growth for its industrial and public infrastructure business segments, as there has been a strong concentration within these areas.
West Fraser Timber Company
Known as one of the largest integrated forestry companies in Canada, and much of North America, West Fraser (NYSE: WFG) has more than 11,000 employees and holds a strong track record for being one of the most influential players in the industry when it comes to sustainability and corporate governance.
West Fraser however recently reported sales of $1.62 billion, and earnings of $42 million, or $0.53 per diluted share.
The company has said in its Q1 2023 quarterly report that ongoing tight mortgage rates and slowing building activity in the U.S. housing market have driven down demand, however, other business segments such as European Engineered Wood Panels and Pulp & Paper segments provided positive EBITDA.
Stock wise, there could however be a better upside for investors, and the company as a whole going forward. So far, YTD prices are up 2.28%, and the year price range is currently sitting at $67.45 - $102.96 per share.
It’s worth mentioning that West Fraser is one of the few companies on our list that is listed on an American-based index, and could provide better growth potential in the long run for investors that are eager to tap the hardware and materials bubble.
Additionally, ongoing efforts to align itself with more progressive environmental practices could also help not only its stock price but also ESG-based investment opportunities.
Going forward
Perhaps a market segment that has seen steady growth on the back of slowing construction and higher interest rates, there’s continuous upside in these companies as they closely align themselves with ESG principles, and strong business development structures that could translate into positive long-term results.
