Jefferies is highlighting several construction materials companies as buying opportunities following a sector-wide pullback tied to recent geopolitical developments and elevated energy costs. Since the start of the war in Iran three weeks ago, the construction materials sector has fallen 18%, versus a 4% decline for the broader market, the firm notes.
The brokerage singled out Martin Marietta Materials (NYSE:MLM), Vulcan Materials (NYSE:VMC) and Ferguson (NYSE:FERG) as names that now trade at more attractive valuations and warrant investor attention. Jefferies argues these three companies have lower sensitivity to consumer spending swings, commodity energy prices and interest-rate moves than many peers.
Jefferies acknowledges a short-term headwind from diesel for Martin Marietta and Vulcan Materials. Managements at both companies estimate diesel accounts for roughly 7-10% of cost of goods sold, which will exert near-term margin pressure as fuel costs remain elevated. Despite that, both firms view the inflationary backdrop as an opportunity to seek mid-year price increases in response to higher input costs.
On the demand side, Jefferies expects stability as project pipelines tied to infrastructure buildout, data centers, power generation and liquefied natural gas facilities continue to support volumes. These end markets are cited as sources of steady demand that could help offset cost pressures.
Within residential-exposed names, the firm points to James Hardie Industries (NYSE:JHX) and Trex (NYSE:TREX) as attractive. Jefferies estimates both stocks are trading at 20-40% discounts to their historical multiples observed at the bottom of the repair and remodeling cycle. The brokerage highlights that James Hardie has produced solid results and has raised guidance in each of the last two quarters, noting improving commercial momentum and substantive conversion from the AZEK acquisition. Trex, according to Jefferies, is positioned to accelerate growth through stepped-up marketing spend, new leadership, greater focus on innovation and a wider scope for merger and acquisition activity.
Not all names in the sector receive a favorable assessment. Jefferies warns that Mohawk Industries (NYSE:MHK) is particularly exposed because about 31% of its sales are generated in Europe where energy prices have spiked sharply; the firm also notes Mohawk lacks pricing power in that environment. Separately, Builders FirstSource (NYSE:BLDR) faces challenges as the current conditions make it harder to achieve expectations for a pronounced second-half 2026 recovery in single-family housing starts.
Jefferies frames the sector weakness within a broader energy and interest-rate picture. Energy prices remain elevated with the war in Iran now three weeks in and with damage reported to LNG export and oil refinery capacity. Meanwhile, the 30-year fixed-rate mortgage has risen to 6.4% after briefly topping 6% in late February, and the path toward Federal Reserve rate cuts is described as less clear.
Market context - summary
- Construction materials sector down 18% versus 4% drop in broader market since the war in Iran began three weeks ago.
- Martin Marietta, Vulcan Materials and Ferguson identified as less sensitive to consumer spending, energy and rates, and trading at more attractive valuations.
- Diesel costs represent 7-10% of COGS for Martin Marietta and Vulcan Materials, pressuring margins in the near term; managements plan mid-year price increases.
Key points
- Valuation opportunity: Select construction materials names now trade at cheaper multiples relative to recent sector levels.
- Demand resilience: Infrastructure, data centers, power generation and LNG facilities are cited as stabilizing end markets.
- Residential plays: James Hardie and Trex are highlighted for potential upside given discounts to historical multiples and company-specific catalysts.
Risks and uncertainties
- Energy exposure: Elevated diesel and broader energy prices create margin pressure for producers, notably those with European sales exposure.
- Pricing power limitations: Companies lacking the ability to pass through higher energy costs to customers - for example, Mohawk in Europe - face outsized vulnerability.
- Housing recovery timing: Builders FirstSource may struggle if the expected single-family housing starts rebound in the second half of 2026 does not materialize.
This analysis reflects Jefferies' recent views as presented by the firm. Readers should note the operating environment described here, including energy prices and mortgage rates, and the company-level exposures highlighted by Jefferies.