Finding the best shares to buy now is not an easy task. I look for businesses that provide products and services to burgeoning markets that could give stable and consistent investor returns. One stock that could fall into that category is Breedon (LSE:BREE). Should I add the shares to my holdings?
Construction materials and infrastructure
As a quick reminder, Breedon is a construction materials business with operations in the UK and Ireland. Some of the materials it produces include cement, aggregates, concrete, and asphalt, as well as other specialist construction products. Furthermore, it also offers contracting services for large infrastructure projects such as building roads.
So what’s happening with Breedon shares currently? Well, as I write, they’re trading for 59p, as a penny stock. At this time last year, the stock was trading for 110p, which is a 46% drop over a 12-month period.
Many shares have fallen in recent months due to macroeconomic headwinds as well as the tragic events in Ukraine.
The best shares to buy have risks too
The biggest threat to Breedon’s investment viability, especially in the shorter term, is that of macroeconomic factors. Soaring inflation, the rising cost of raw materials as well the supply chain crisis will have an impact on operations, as well as profitability. This could affect its balance sheet and growth plans as well as shareholder returns.
Competition in the construction industry is intense. There are many players all vying for the same customers and contracts to boost their coffers and grow. Breedon could be out-muscled and outmanoeuvred by competitors with more financial power and presence.
The bull case
The construction market is a growing one. In fact, it wasn’t majorly disrupted when the pandemic struck. Governments allowed construction businesses to continue as best they could, unlike many others, and continue building where it was safe to do so. As well as this, demand for housing is currently outstripping supply. A lot goes into building homes and lots of different types of aggregates that Breedon supplies are required. In the longer term, Breedon could see this surge in construction spending turn into performance growth and investor returns.
At current levels, Breedon shares look decent value for money on a price-to-earnings ratio of just 12. Furthermore, the shares would boost my passive income through dividend payments. The shares currently yield 2.8%. Most of my best shares to buy boost my passive income stream. It is worth remembering, however, that dividends can be cancelled at the discretion of the business at any time.
Breedon already has a good track record of performance, even in the pandemic period. It has recorded consistent revenue and profit in the past four years. I do understand that past performance is not a guarantee of the future.
Overall, I think Breedon could be a shrewd addition to my holdings, especially as the shares have fallen back in recent months. Large scale construction spending on infrastructure by the government as well as initiatives to boost the number of homes should benefit a business like Breedon. I would add the shares to my holdings and expect to see consistent and stable returns.
