USG Corporation (USG), Martin Marietta Materials, Inc. (MLM): Homebuilder Sentiment Surges Above Expectations

Page 1 of 2

Mortgage rates have picked up substantially in recent weeks ahead of the FOMC meeting, reducing homebuyers’ housing affordability. As a result, homebuilders may become concerned about falling demand. On the bright side, the housing outlook remains positive due to housing starts up a strong 28.6% YoY and permits up 20.8% YoY. Moreover, the National Association of Home Builders (NAHB) Housing Market Index, a measure of homebuilder sentiment, surged to 52 in June from 44 in May. This is the highest level since March 2006 and the first time the index reached above breakeven levels since April 2006. Expectations were looking for a modest uptick to 45.

USG Corporation (NYSE:USG)

Helped by public constructions

Vulcan Materials Company (NYSE:VMC) is the largest producer of construction aggregates with a diversified customer base. The downturn in construction activity has hit them big time, but as the U.S. economy recuperates, the company should be able to bounce back quickly. As a producer of asphalt mix, concrete, and cement in Florida, it has benefited from gains related to starts activity that were higher than average in the Southeastern part of the country.

The company expects earnings to improve in 2013 and deserves a strong “buy” recommendation, founded on the following four reasons:

  1. Pricing power: high barriers to entry should help Vulcan Materials Company (NYSE:VMC) bear price increases ahead of inflation, resulting in expanding margins and resilient returns on invested capital.
  2. Growth: aggregates shipments are expected to grow in the range of 1%-5% in 2013, ahead of 2012’s 1% decline. The company’s production facilities and aggregates reserves are situated at close proximity to large metropolitan cities, thus giving it a competitive advantage to invest in high-return projects.
  3. Cost-cutting: aggressive cost control initiatives are still in progress. Last year, cost saving actions resulted in improved per-ton margins and lowered its Selling, General, and Administration costs by 11%. EPS is expected to increase 109% this year and 19% next year.
  4. Demand: the company should benefit from increasing demand volumes in the private and public sectors. Some outstanding initiatives include the new highway bill and an expanded Transportation Infrastructure Finance and Innovation Act (TIFIA) program that provides credit assistance in the form of secured loans, loan guarantees, and lines of credit to major transportation infrastructure projects.

Growth and acceleration in EPS

Martin Marietta Materials, Inc. (NYSE:MLM) is the nation’s second-largest producer of construction aggregates and a large producer of magnesia-based chemicals and dolomitic lime. As such, the firm is highly sensitive to economic conditions associated with the housing and construction markets. During challenging times, however, the company’s strong balance sheet serves as a dose of protection.

Martin Marietta Materials, Inc. (NYSE:MLM)‘s management predicts a 2%-4 % increase in pricing of heritage aggregates for the current year, based on stronger new construction activity across the country. Last March, the company’s CFO announced a regular quarterly cash dividend of $0.40 per share of common stock, which represents a cash dividend of $1.60 per share on an annualized basis. It is payable on June 28 to shareholders of record at the close of business on June 3, 2013.

I recommend buying Martin Marietta Materials, Inc. (NYSE:MLM)‘s stock based on consistent growth and acceleration in the company’s earnings. Last year, EPS grew 19%. This year, it’s expected to increase by 22%, and next year by 45%. ROE of 7%, compared to the industry average of 5%, shows that the company reinvests its earnings more efficiently than its industry peers. On a P/E basis, valuation also looks attractive, as the shares currently trade at 11.8 times, a 5% discount to the industry average of 12.4.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

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!