Although one-third of First Trust Materials AlphaDEX ETF (FXZ) is in chemical companies, its most interesting stocks are smaller holdings in the building trades.
It’s in that batch that investors will find Masco (MAS), Watsco (WSO), Martin Marietta (MLM), Vulcan Materials (VMC) and other building-supply companies that have become among the best performing in the market today.
Masco broke out past a 30.71 buy point in March and is near new highs after finding support at the 50-day moving average. The cabinetry maker’s earnings growth ramped up 26%, 61% and 78% the past three quarters. Sales gains have been in single digits, however.
Martin Marietta, a provider of asphalt, concrete and other aggregates, has surged more than 75% from its Feb. 9 low. Vulcan, another supplier to the heavy-construction industry, is at multiyear highs after an impressive climb since January. The two are growing thanks to the rise in home construction (April new home sales were at an eight-year high) and new funding for roads and bridges.
Watsco has pulled back from its April high, but is holding on to most of its 2016 advance. Valspar (VAL) is another top holding, although the paint maker is being acquired by rival Sherwin-Williams. The stock soared to record highs in March on news of the deal and has been flat since then.
Fastenal (FAST), a construction supply retailer, is 3.1% of the total fund. Shares are consolidating but trading below the 50-day moving average.
At its core, First Trust Materials is a cyclical-stock play. Its major holdings include Dow Chemical (DOW), Steel Dynamics (STLD), fertilizer giant Mosaic (MOS) and paper producer Domtar (UFS). Although some major holdings are well off 52-week highs, it’s not that they’re all dogs. Dow and Steel Dynamics made big strides earlier in the year.
One-third of the ETF is in chemical stocks, about 16% in mining and 15% in packaging. Building and construction companies make up a combined 18%, according to the fund’s website.
First Trust Materials tracks an enhanced index developed by NYSE Group that selects stocks from the Russell 1000 based on growth factors including three-, six- and 12-month price performance. Sales to price and one year sales growth are other selection factors, as well as certain valuation gauges.