TRG | The Bottom Line – 1/6

Going into 2023, TRG’s Investing Themes note published this week addressed a more uncertain macro and housing environment versus last year at the same time. Our 2022 Investment Themes focused on “Heading South?” in relation to the long-term population shift towards the SMILE (SE/SW) states. That said, the key factors that drove the year in housing were rates and inflation headed north, and stock prices subsequently headed south. As we look into 2023, there is some line of sight that the big rate hikes are mostly behind us, the subsequent impact has already (and will continue) to impact volumes, and consumers are cautiously looking into 2023. Drivers for top picks include: 1) residential – amidst uncertainty, buy cheap; 2)  low relative leverage, strong cash position/generation; 3) cheap valuation relative to peers; 4) good management teams focused on long-term value creation despite near term macro woes. We also would focus on names with better relative earnings momentum versus peers (i.e., companies with greater likelihood of earnings upside/better relative performance). We believe a “boots on the ground” is more important than ever. Upcoming events TRG will be attending in January to gain greater end market clarity include 1) World of Concrete (Jan 16-17); 2) Int’l Builder Show/KBIS (Jan 30-Feb 2); and 3) Texas Transportation Forum. TRG will also host our annual Construction & Industrial Conference this spring…stay tuned for additional details.