Why I’d buy these 2 rising construction stocks

The UKs largest independent construction materials business Breedon Group (LSE: BREE) first came to my attention in October of last year. At the time the company was already one of the largest firms on the Alternative Investment Market (AIM) and had already delivered spectacular gains for its shareholders.

Buy, sell, or hold

Nevertheless, I decided to back the AIM-listed construction group to continue its upward surge and deliver even greater capital gains over the coming months. The business certainly didnt disappoint, with group revenues for 2016 up by a massive 42.8% to 454.7m, and underlying earnings rising 57.8% to 59.6m, including a five-month contribution from newly-acquired Hope Construction Materials.

With the shares now up 24% on my original recommendation I once again face the dilemma of whether to stick with my original buy rating, downgrade to a hold, or even a sell in a bid to secure those paper profits.

Only human

First and foremost we have to admit that we are only human, and being successful in investing is as much about mastering our own emotions as it is about fundamental or even technical analysis. Therefore I would suggest that those who have seen the value of their shares at least double over the past few years could perhaps sell half their holding, thereby banking some profits, removing further risk, and achieving peace of mind, all in one fellswoop.

This mornings interim results showed that the business can continue to deliver strong growth, as revenues doubled to 326.3m for the first six months to 30 June, with pre-tax profits also rising significantly from 20.9m to 31.2m over the same period. I truly believe that Breedon still holds appeal for new investors. With earnings forecast to rise by a further 35% over the next two years, a P/E ratio of 18.3 for 2018 is still not too demanding in my view.

New products

Meanwhile Marshalls (LSE: MSLH) is another top performer from the construction sector that Ive had my eye on for quite some time. Indeed, shares in the West Yorkshire-based business have soared since my initial recommendation less than a year ago (August 2016), gaining 32%. But I believe theres plenty more upside still to come.

In its last trading update the UKs leading hard landscaping manufacturer reported a 6% rise in group revenues to 135m for the four months to the end of April, with a particularly strong performance in the domestic end market, where sales rose by 13% compared to the same period a year earlier.

I believe Marshalls can continue to grow at a reasonable pace, with its significantly increased capital expenditure programme making good progress with new product development, resulting in an encouraging pipeline of new products. Despite a 42% gain over the past year, the shares still look good value given the growth outlook, with the P/E ratio dropping to 17 after an anticipated 17% rise in underlying earnings over the next two years.