Hedge Fund Manager John Griffin Bought This Stock

BLUE RIDGE CAPITALAccording to a 13G filed with the SEC, Blue Ridge Capital has acquired a total of 6.7 million shares of Owens Corning (NYSE:OC). Owens Corning is a $3.9 billion market cap materials company which provides composites and building materials such as glass fiber. Blue Ridge, managed by Tiger Cub John Griffin (Griffin, in fact, was Julian Robertson’s second in command at Tiger Management before launching Blue Ridge in 1996), had initiated a position in the stock during the second quarter and owned 2.6 million shares at the end of June. Find more stock picks from Blue Ridge Capital.

In theory, Owens Corning should be able to benefit from a continued upturn in the housing market (as well as in general from higher construction activity). However, during the second quarter, sales actually came in 4% lower than in the second quarter of 2011. With operating expenses actually up slightly, earnings were cut in half. With the company taking losses in the first quarter of 2012, the first half of the year has actually generated 6 cents per share of losses compared to 81 cents per share of earnings in the same period in the previous year. Cash flow from operations for the first half of 2012 was slightly negative as well.

With these poor results in the books, the company currently trades at 24 times trailing earnings. We would generally consider that a high multiple for a struggling company, even one which has some growth opportunities from construction activity. Wall Street analysts expect quite a bit of upside there, and their consensus estimate for 2013’s earnings per share is $2.16; that implies a forward P/E of 15, but depends on better results in the next several quarters than we’d want to depend on.

Other hedge fund managers also liked Owens Corning during the second quarter. Billionaire David Tepper’s Appaloosa Management increased its own stake in the company by 54% to a total of 2.3 million shares; the fund had initiated its position during the first quarter of 2012 (see more stocks that Appaloosa liked). Maverick Capital, managed by Lee Ainslie, also bought shares and closed June with 4.3 million shares in its portfolio (research more stocks that Maverick owned).

PPG Industries, Inc. (NYSE:PPG) is one peer for Owens Corning; while considerably larger at a market cap of about $18 billion, its operations include glass fiber production. Its forward P/E of 15 matches Owens Corning’s, but PPG doesn’t require as much improvement at its business to hit that figure as its trailing P/E is 20. PPG also grew its earnings by 9% on flat revenue in the third quarter compared to a year ago, and seems to be in a better position as a company.

Peers in the general building materials industry include aggregates provider Martin Marietta Materials, Inc. (NYSE:MLM), gypsum products company USG Corporation (NYSE:USG), and aggregates and concrete company Vulcan Materials Company (NYSE:VMC). USG and Vulcan had little change in revenue in their most recent quarter versus a year earlier; while Martin Marietta’s sales were up, its earnings growth was modest. These companies look like even worse values on a quantitative basis than Owens Corning does. USG and Vulcan are unprofitable on a trailing basis, with forward P/E multiples above 60; Martin Marietta trades at trailing and forward P/E multiples of 64 and 26, respectively. Even with similar optimism from analysts, these peers don’t look as attractive as Owens Corning.

We think it makes more sense to buy Owens Corning than some other building materials companies. PPG, however, looks like a better buy as it is less dependent on improving its business over the next year to justify its valuation.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!