TRG | The Bottom Line – 7/11

TRG published two quarterly survey reports this week on Q2, Contractor & Surety and Res & Non-Res Products. The overall feedback is consistent with recent quarters from industry contacts that contributed to both surveys. First, anything rate-sensitive is showing moderate declines (housing and local market non-res projects). Second, in non-res, large projects are still very strong and cancellations are modest. Also, overall margins for non-res contractors are solid. Third, the lack of labor is more of a pain point in res than non-res, given non-res is more skills-trade-oriented. The lack of labor issue is more likely to worsen in the coming months and potentially be an incremental pressure to already subdued SF NC activity. Fourth, consolidation is ongoing. This is most pronounced in resi, as organic demand is declining broadly.  
 
What does all this mean for picking stocks? Unless you’re playing or waiting around for lower rates = higher demand (which is likely to lift a lot of TRG stocks, in our view), we advocate that investors must pick their spots. We continue to seek out stocks with secular growth at good value. In building products, LPX and HNI have these features. We believe both can show growth in the midst of weak end-markets. In non-res, we believe equipment rental and leasing remains a secular growth story in which big players stand to benefit from large projects offsetting the pressure of local markets. Speaking of, early next week we plan to publish our Q2 Equipment Rental Survey.