The construction industry, a cornerstone of global economic growth, is witnessing a seismic shift driven by sustainability and technological innovation. The recent surge in market-beating stocks, particularly those in the construction and related sectors, offers a glimpse into the future of the industry. These stocks, characterized by robust sales growth, increasing margins, and rising returns on capital, are not just financial successes but also indicators of broader trends reshaping the sector.
PACCAR (NASDAQ:PCAR), a century-old company, has demonstrated remarkable resilience and growth. Its operating margin improvement of 6.3 percentage points over the last five years underscores its ability to scale efficiently. With an industry-leading 30.7% return on capital, PACCAR is a testament to management’s acumen in identifying high-return investments. The company’s rising returns on capital signal that it is continually finding more lucrative opportunities, making it a standout in the commercial trucking industry. Trading at $89.75 per share, or 11.9x forward price-to-earnings, PACCAR’s stock performance reflects its strategic investments in sustainable and efficient technologies, aligning with the industry’s push towards greener practices.
Nextracker (NASDAQ:NXT), a key player in the renewable energy sector, has seen its technology integral to projects like the 1.2 gigawatt Noor Abu Dhabi solar farm. With a backlog averaging 56.1% growth over the past two years, Nextracker’s pipeline of unfulfilled orders ensures future revenue stability. Its earnings per share growth of 131% outpacing revenue gains highlights the profitability of its incremental sales. The company’s free cash flow margin growth of 13.1 percentage points over the last five years provides it with more financial flexibility. Trading at $38.80 per share, or 12x forward price-to-earnings, Nextracker’s stock performance is a barometer of the growing demand for sustainable energy solutions in the construction sector.
KBR, known for its engineering and construction prowess, including the construction of Guantanamo Bay, is another standout. Projected revenue growth of 14% for the next 12 months indicates accelerating demand. KBR’s improving returns on capital suggest that its past investments are beginning to yield value, while its operating profits and efficiency have risen over the last five years. Trading at $47 per share, or 12.5x forward price-to-earnings, KBR’s stock performance reflects the increasing demand for sustainable and efficient construction practices.
The market’s surge in 2024, reaching record highs after Donald Trump’s presidential victory in November, has added a layer of uncertainty for 2025. However, the construction industry’s focus on sustainability and technological innovation positions it well to navigate these uncertainties. Companies like PACCAR, Nextracker, and KBR are not just weathering the storm; they are leading the charge towards a more sustainable future.
The construction industry is at a crossroads, where traditional practices are giving way to innovative, eco-friendly solutions. The performance of these market-beating stocks is a clear indication that the future of construction lies in sustainability and technological advancement. As the industry continues to evolve, companies that prioritize these factors will not only thrive financially but also contribute to a greener, more resilient world.
