This recovery is happening, whether you're in or not!

by , 15 October 2013

Retail shares have crashed this year, the unsecured lending bubble has popped and mining shares are going nowhere slowly as workers keep striking…

With the market looking like this, what should you invest in?

Well, what about the one sector making a comeback?

Back in 2009 one of the largest construction companies, Murray and Robberts, was worth R50 billion. Today the WHOLE construction sector is worth R62 billion…

It's pretty clear that shares in the sector took a massive knock. But today I'm telling you to make sure you're in for the ride, because the construction sector IS on its way up.

And if you don't make money from it, you are losing out!

Let me explain…

Mounting proof of a strengthening construction recovery

I’ve been following the construction sector closely, looking for recovery signs for three years now. Last year the first green shoots appeared as the sector bottomed out.

But right now, the sector is positively going up.

You see, in July I received a report showing that building activity is up and running again. And then this month even bigger news came out.

Cement sales for the third quarter of the year is up 9.8% in volume. That’s the largest growth since the construction crash…

So it’s clear that builders are doing even more today.

And the jobs they’re doing are making money as well.

Everything points to higher profitability in the construction sector

In the past six months I’ve seen a host of construction companies return to profitability. Two of my favourite entries into the sector, Esor Franki and Group Five tripled and doubled their profits for the period.

 Then there’s the actual data I’ve been working through.

Just have a look at the chart below:
Construction sector Recovery takes hold
Construction Sector Recovery
It shows you the growth of the civil construction industry.

What you’ll see is that since 2008 the industry has been in negative territory. And in 2010 things REALLY looked bad. But since then negative growth has slowly been turning back towards positive growth. And my expectation is that we’ll have the first quarter of positive growth in six years this year.

That’s growth across the board – for all construction companies! But obviously, picking the right entry point is important.

Make sure you pick the ‘SAFE’ investments in the construction industry

If you want to invest in this recovery play you need to look for ‘safe’ investments.

Companies that generate enough cash flow, have low amounts of debt on their books, are selling at a discount to their NAV, and preferably companies that have been making money in the midst of the construction sector’s difficulties.

Esor Franki, which is a share my Red Hot Penny Shares members hold, is still trading at a 35% discount to its asset value! And the share is on a PE of 8.8. That’s a 50.6% discount to the All-Share Index PE; clearly the share is undervalued and presents a great opportunity to make money from the recovery…

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Editor's Note: Follow me on Twitter to get my views on breaking news and analysis for investments and shares on the JSE. @FrancoisJou



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