Top US building products stocks according to Jefferies

Jefferies has identified key stocks in the US Building Products sector, taking a strategic approach that combines strong residential housing companies with non-residential and infrastructure names. Despite facing challenges from increased interest rates and rising energy prices, the firm has lowered expectations for the sector due to these headwinds.

The average 30-year fixed-rate mortgage is now sitting around 7%, which Jefferies anticipates single-family new residential construction to decline slightly, while repair and remodeling activity remains steady in 2027.

However, the sector's recent stock sell-off has made these companies trading at the lower end of their historical price multiples. Jefferies still anticipates positive results from the group, with a focus on solid earnings from the companies involved. James Hardie is expected to significantly surpass its $500 million cross-sell synergy target, with gains anticipated in 2027 due to the company's expansion into a $500 million decking business and the conversion of legacy distributors.

Trex is another company that Jefferies finds attractive, citing accelerating growth and improved web traffic data, which saw a 100% increase in year-over-year visits during the third quarter. The company is also benefiting from better oriented strand board pricing, which has risen 26% since August lows following curtailments at Jasper and Maniwaki.

Both Trex and James Hardie are expected to see relief rallies in the near future, with pricing letters for shares trading in the 8% to 10% range. This suggests that a 6% to 7% price increase could be well-received by investors. Vulcan, like its counterparts, is also positioned for a relief rally and is included in Jefferies' preferred non-residential and infrastructure names in their sector barbell approach.