Here’s Why Institutions Had Been Buying Martin Marietta Stock

Key Points

• As the U.S. construction sector prepares for a potential boom, investors may be looking for opportunities beyond homebuilding stocks.
• Martin Marietta Materials became a prime suspect as Goldman boosted the stock's price targets. 
• Above peers, and with high institutional ownership, it's a stock that could beat EPS expectations this year.

A U.S. construction boom may be in the works, as the current housing market has hit a stalemate between willing buyers and sellers. With only one alternative left to break this frozen property market, homebuilding stocks and their horizontal components could attract most of Wall Street’s attention this cycle. 

Among these horizontal players are building material stocks. Names like Eagle Materials Inc. NYSE: EXP and Mexican-based Cemex NYSE: CX come to mind as some of the most popular and often mentioned companies. However, those in charge of investing some of Wall Street’s biggest assets have chosen Martin Marietta Materials Inc. NYSE: MLM instead. 

Riding on the tailwind of a sector breakout, the stock gives investors all the evidence they need to justify adding it to their watchlists. Other reasons will become apparent in a bit. Still, before investors enter the deal’s weeds, here’s why the sector’s momentum favors Martin stock. 

All Evidence Points to a Breakout

According to the Intercontinental Exchange Inc. NYSE: ICE, most mortgage holders in the U.S. today carry an average interest rate of only 3.25%. These low rates compare to today’s 30-year fixed mortgage interest rate of 7.6%, more than double the average. 

At the same time, the average home price, according to the Federal Reserve (the Fed) data, is $492,300. This figure stands above the pre-pandemic home prices of $375,500 and reflects a 31% higher price in only a few years. 

Knowing this, it is easier for investors to see how current buyers aren’t willing to let go of their cheap mortgage and appreciation gains on their homes. New homebuyers aren’t particularly excited to get a more expensive mortgage at a premium home cost. 

To build up the way to fix this stalemate is to inject more housing inventory. Warren Buffett saw this coming in 2023, so he started buying names like D.R. Horton Inc. NYSE: DHI ahead of the trend. 

While it may be too late for investors to get into the leading homebuilding players, there’s still a chance to profit in Martin Marietta. 

Price Action Suggests Maritn Marietta is Next

Over the past 6 months, the Vanguard Real Estate ETF NYSEARCA: VNQ has risen by only 10.5%, compared to Martin Marietta’s 51.5% performance. However, Pulte Group Inc. NYSE: PHM came in first at a 56% run, which makes sense as it is one of the first names to get paid in the construction boom. 

The value creation in the construction industry could now be shifting from the homebuilders (like Pulte) down to construction material providers like Martin Marietta. To check on this live transition, investors can lean on analyst price targets, suggesting a 2% downside for Pulte stock through its consensus $111.7 a share valuation. 

In the case of Martin Marietta, analysts at The Goldman Sachs Group Inc. NYSE: GS think the stock could go as high as $737 a share. The stock would need to rally by as much as 22% from today’s prices to prove these targets right. 

More than that, the market is now placing a premium valuation on Martin Marietta’s future earnings, even above its industry peers. A current 26.2x forward P/E would mean a premium of 65% over Eagle Materials’ 16x multiple today.

There must be a good reason markets are willing to overpay for Martin Marietta’s earnings, but it doesn’t stop there. On a price-to-sales (P/S) ratio, a 5.6x multiple would mean a 54% premium to the industry’s 3.6x average valuation. 

The market is not the only player looking to bid the stock higher, as some Wall Street institutions also see more upside in Martin Marietta. Institutions now own up to 95% of the stock, giving investors the quality stamp they may seek in the following construction run. 

One Last Fundamental Check

Despite the bears raising the short interest in Martin Marietta by 13.6% in the past month, the total percentage of short shares remained at only 1.6%, giving bulls the open field they need to potentially break this stock higher. 

A reason bears aren’t able – or willing – to short this stock could be found in the company’s financials. According to the fourth quarter 2023 results, earnings per share (EPS) advanced by 53.8% over the year, making current analyst predictions for 12% growth this year a somewhat conservative goal. 

Continuing the industry trend can give Martin Marietta’s 17% net income margin a chance to deliver better-than-expected EPS results for investors.