Shares in European construction and building companies underperform the broader market as a Berenberg Bank note highlighting stretched valuations in the sector invites profit taking following a strong performance over the last 12 months, traders say.
The STOXX Europe 600 Construction & Materials index drops 1.5 percent while the broader STOXX 600 is down 0.4 percent. The sector index has gained around 20 percent since March 2013, outperforming a 13 percent rise for the STOXX 600.
"It has become harder to find clear value opportunities in construction and building materials," Berenberg writes in a note. "We believe that a stock-picking strategy in 2014 is required."
Earnings expectations for the cement names in particular are too optimistic and at risk for downgrades, whereas specialised building products manufacturers will continue to attract a premium valuation, Berenberg writes.
Shares of cement makers Heidelbergcement, Lafarge and Holcim - all of which are downgraded by Berenberg - drop between 2.7 and 1.6 percent.
Shares in Kingspan and Saint Gobain, which are among the companies seen as a "buy" opportunity by Berenberg, lose 2.1 and 1.1 percent respectively.
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