Vulcan Materials (NYSE: VMC): The Construction Company That's Hitting All Time Highs

A 4% jump in Friday’s session was enough to make shares of Vulcan Materials (NYSE: VMC) among the best-performing stocks in the S&P 500 index. It means the stock is only a little more than that away from matching the all-time highs it set back in October. For a building materials company that watched its stock drop more than 50% in less than two months earlier this year, that’s not a bad way to close out 2020.

It’s a similar recovery story that we’ve seen across the construction materials industry this year. While the tech names might have grabbed the headlines for being flashier, the likes of Vulcan, Caterpillar (NYSE: CAT), Forterra (NASDAQ: FRTA) etc. have all pulled off stunning rallies in the past nine months. Vulcan is well on its way to close out the year with more than a 120% move off its 2020 lows and that’s a level of momentum not to be sniffed at.

2021 Tailwinds

Earlier this month, Morgan Stanley initiated coverage of the Alabama based company and gave their shares a $150 price target. 2020 has been a funny kind of a year for the construction sector, as demand for home building and DIY projects exploded but commercial and public sector projects were put on hold. But as we start to see a return to some kind of normal operating procedure with the rollout of a COVID vaccine, the fresh recovery potential in the latter is enormous. It’s these tailwinds that have Morgan Stanley sitting up and taking notice.

As CEO Tom Hill said with last month’s Q3 earnings report;  "Year-to-date, cash gross profit per ton has increased 7 percent, despite a 4 percent decline in shipments. Residential construction has rebounded quickly which should bode well for private nonresidential construction as it has been the weakest end market since the pandemic began.  State transportation revenues continue to recover to pre-pandemic levels, and the one-year extension of federal highway funding will support future highway construction.” Hill followed up with a prediction that construction activity will stabilize during 2021 and felt confident enough to offer full year guidance.

The company’s operations were also impacted pretty heavily by a run of severe weather along the Gulf and Atlantic coasts while shipments in California were impacted by the catastrophic wildfires and resulting power outages that lasted through much of the summer. To be able to come through these and COVID with shares close to all-time highs will feel like a win to management and shareholders.

Attractive Technicals

With Friday’s jump, the stock’s MACD is on the verge of a bullish crossover which can often act as a reliable entry signal. This month’s low around the $135 mark acts as a level of support and somewhere to place a stop to control the downside.

To the upside, it should be a pretty smooth ride up to October’s high of $154. A seemingly insatiable bid has carried shares up here already this year, and given them consistently higher highs and higher lows. By all appearances that demand is set to stick around for a while longer yet.