Index Shows Companies Are Building Again

Looking for a reason to be bullish on construction materials and equipment stocks? Take a look at the Architecture Billings Index (ABI) published by the American Institute of Architects.

The ABI registered a score of 52 in November, up over 6 percent from the October level of 48.7, the index's highest reading since December 2007. More importantly, all regions were expanding except for the West, which remains bogged down in the muck of a popped real estate bubble. Though activity in the region was down from the previous month, the strongest region was the Northeast.

The chart shows the ABI bottomed in January 2009 and has experienced a resurgence during the next 23 months.

The ABI is one of the best tools we have to measure non-residential construction activity, such as the development of offices, warehouses, strip malls and apartments but there's typically a 9- to 12-month lag between movements in the ABI and construction spending.

If the expansion continues, this could be a positive for both construction materials companies, such as U.S. Steel, and for equipment makers, like Caterpillar. Many in the latter category have been feasting on emerging market growth in places like China while the U.S. recovered and 2011 may be the time for that growth to come home.

The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of September 30, 2010: Caterpillar.