There are a number of improving indicators in the American construction industry lately. New home construction is off to a strong start in 2013, developers are finding easier loans in hot markets like New York, and there’s talk of a commercial real estate rebound in the near future.
Investors are looking for stocks profiting from this trend. The obvious play has been to pile into red-hot stocks like PulteGroup (NYSE:PHM) or Toll Brothers (NYSE:TOL) to play housing construction. If you want commercial real estate, you can dabble in office space via a host of REITs like Boston Properties (NYSE:BXP).
But what about playing construction via automakers?
It sounds crazy at first, I admit, but think about it: Pickups are largely utilitarian transportation. Whether you’re a landscaper, roofer or painter, chances are your vehicle of choice is a truck. So any cyclical recovery across the small businesses serving the construction industry would trickle down into new pickup sales.
Ford recently made waves at the Detroit Auto Show by unveiling a new F-150 concept, and not just because it looked slick.
The F-150 is the best-selling American truck for 36 years running, and has claimed the best-selling vehicle crown across all categories for 31 years. As NPR puts it, “It’s arguable that the Ford F-150 is the most important vehicle to come out of Detroit since the Model-T.” Clearly a shakeup to the F-150 is telling.
But if that wasn’t enough, consider that the GMC Sierra and Chevy Silverado are due for relaunches in the next few months, too.
Even if you believe these trends are a good tell, right now you might be wondering why an automaker with global operations should be closely tied to construction. Isn’t there a lot that can go wrong at Ford or GM to offset any truck gains?
Sure there is. However, it’s important to note that the profitability from trucks and SUVs is significantly higher than the fuel-efficient vehicles both companies have been focusing on in recent years. After Ford relaunched its European-inspired Fiesta in the U.S., some reports pegged the dealer profit at less than $300 a car.
A big-ticket F-150, however, can deliver up to $8,000 in profits, according to industry reports.
GM and Ford admittedly have underperformed in the past 12 months and year-to-date in 2013. However, a recovery in construction means a recovery in truck sales and a recovery in profitability.
That might be a long road to go down for an investment thesis, but if you’re already leaning toward automakers based on a broader recovery in the next year or two, this might put you over the top.
- Continued gains in housing are hard to argue against. (CNNMoney)
- A great audio report on the race between U.S. truck makers. (NPR)
- Don’t forget the troubles in Europe that weigh on automakers, however. (USA Today)
- And if you’re wondering how Honda (NYSE:HMC) or Toyota (NYSE:TM) fit in … keep in mind that China tensions still weigh on these brands. (WSJ)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.