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

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

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!