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The S&P 500 is known for exciting tech companies, but it also has plenty of ‘boring’ enterprises. Thing is though, these can equally produce market-thrashing returns over time.
As economist Paul Samuelson famously put it: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Are aggregates boring enough?
Which brings me on to Martin Marietta Materials (NYSE: MLM), a leading producer of construction aggregates. For those scratching their head, that’s a term for crushed stone, sand and gravel used in infrastructure and building projects.
Why I’m interested here is because regulatory filings show hedge fund manager Sir Chris Hohn started building a stake in Martin Marietta during the last quarter. His moves are worth monitoring because he has one of the best long-term records in the business.
Last year, his hedge fund (TCI) made $18.9bn for clients, which is believed to be a record amount. Hohn doesn’t buy and sell very often – TCI’s portfolio normally holds just 10-12 stocks — so a new purchase is always noteworthy.
It means forensic research (potentially for years) has been conducted on the business.
How does Hohn crush the market?
Beyond his outstanding record, what I find interesting about Hohn is that he looks at a potential investment differently from most. Similar to the late great Charlie Munger, the hedge fund titan inverts the process by thinking about risk before return.
Investing is all about risk and return, and the vast majority of investors focus on return…Return does matter, but to me, risk was always the first thing that mattered.
Chris Hohn.
Consequently, the billionaire hunts almost exclusively for natural monopolies or duopolies that should stand the test of time. These include Canadian National and Union Pacific (freight railroads), Visa (digital payments), and GE Aerospace (jet engines).
A wide-moat firm with pricing power
Martin Marietta is a classic Hohn buy. Because aggregates are heavy, transport costs escalate beyond a short radius, making long-distance trucking uneconomical.
Combine this with the fact that opening a new quarry is nigh on impossible these days, and the firm essentially operates a collection of localised, regional monopolies and oligopolies.
Plus, it has scale, with around 400 quarries, mines, and yards across North America. These have around 85 years of reserves based on 2024 production levels.
Note that the firm boasts industry-leading profitability. Cash gross profit per ton has been growing at a compound annual rate of 10.1%, almost doubling from 2017 to 2024.
You can see why Martin Marietta calls its business model “compounding returns on a rock-solid foundation”!
Where will growth come from?
Perhaps the biggest risk here’s valuation. Right now, the stock’s trading at 21 times forward earnings. If growth were to disappoint — say because rising interest rates delay projects — the valuation multiple could come under pressure.
However, beyond having an extremely durable business, Martin Marietta has solid growth prospects. It’s set to benefit from mega-projects like gigafactories and data centres, as well as more highways and new home construction to support population growth.
A major push into the lime market also expands the overall opportunity. The stock’s down 30% since February, making it worth a look. It’s one I’ve put on my watchlist.
Should you invest £5,000 in Martin Marietta Materials right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Martin Marietta Materials made the list?
Ben McPoland owns shares in Visa.
This story originally appeared on Motley Fool
