Goldman Likes Mueller Water Products Stock, Should You?

The numbers are there, and professional Wall Street traders have begun to give Main Street investors like you a glimpse of where the big money is about to be made. Their many hours of analysis and rigorous search for the best place to put their capital to work led the analysts to do so The Goldman Sachs Group Inc. NYSE:GS in a simple but elegant game for this cycle.

By looking a little at the “top-down” analysis process employed by the big investment houses, you can understand why stocks like Mueller water products New York Stock Exchange: MWA will shine in the coming months. With double-digit upside in sight, Goldman has picked it as one of the top picks in the sector. The markets have left clear evidence that suggests they love it too.

Also part of a construction stock play, Mueller’s stock is riding the same tailwinds that Warren Buffett noted when he decided to buy into homebuilders like DR Horton NYSE: DHI and other. These stocks have received a lot of attention – and price movement – ​​lately, but you can still get in early for the next wave of housing boom support about to hit the market.

The big picture

You may already be familiar with the hype that has driven broader stock market indexes, such as the S&P 500 and NASDAQ, to all-time highs. The Federal Reserve (Fed) has proposed cutting interest rates by the end of the year. However, some uncertainty still remains as inflation and employment data continue to send mixed signals.

Traders are pricing in these cuts for May this year, according to the FedWatch tool CME Group Inc. NASDAQ: ECM. This means that large capitals will now begin their rotation based on expectations of what will happen in the rate cycle.

While some may chase potential new highs set in tech stocks, particularly in names like NVIDIA Co. NASDAQ:NVDA, others follow the “top-down” drilling mentioned above. The ISM manufacturing PMI index can be a great place to find the next trend.

In the latest quarter, the metals industry posted expansionary data for three consecutive months. Not only that, these readings have accelerated. As for the services PMI, the construction sector is also sending similar data.

With a contraction in December and a more aggressive expansion in January and February, Buffett appears poised to make a big gain from his housing stock. Potential interest rate cuts may increase construction activity as new homebuyers get cheaper mortgage rates.

It’s no wonder that the Vanguard Real Estate ETF NYSEARCA: VNQ it delivered a 5% performance last quarter, which is significant for a low-beta sector like real estate. Specifically, the residential real estate sector is the center of attention today.

A helping hand

In the latest quarter, a real estate area beat the ETF’s benchmark, and for good reason. Residential equity NYSE: EQR it outperformed the ETF by 3% during the period. It’s clear that the market accepts the growing tailwinds in residential construction and that’s where Mueller Water comes in.

Mueller is at the forefront of the residential construction boom making the materials and designs needed for water systems. You can’t build a house without providing the necessary plumbing and water system, right? Well, that’s why there’s a double-digit rise in that stock today.

Analysts at Goldman Sachs see a price target of $17 per share, directly calling for a 13% upside from the current trading level. Expecting the next set of quarterly results to be much better than the previous one, markets are also preparing their bids for some upside in the name.

While the rest of the steel and pipe sector trades at an average price-to-earnings (P/E) ratio of 10.5x, Mueller’s stock is valued at a significantly higher multiple of 22.8x. A 118% premium to the sector could turn some away, deeming it expensive.

Remember the saying “It has to be expensive for a reason” because it applies here too. Knowing what you know now, it shouldn’t be surprising that the broader market expects this stock to report a banner quarter, especially now that the writing is on the wall for residential construction to take off.

On top of this, the industry is set to grow its earnings per share (EPS) at an average rate of 11% over the next twelve months. Analysts expected 17.4% growth for Mueller’s EPS during this period, further justifying how markets value the stock today.

Before you consider NVIDIA, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and NVIDIA wasn’t on the list.

While NVIDIA currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here