Following the stock prices of large multi-national and smaller public domestic construction companies gives a sense of how Wall Street investors view our industry. This segment’s prices are an accurate barometer of our industry’s health.
First, let me say, our firm does not buy, sell, or trade stocks. Nor do we publish stock research. But we do pay attention to what these observers are telling us by their actions. So my comments are truly subjective observations based on my personal thoughts. As mergers and acquisitions advisors, however, the health of the major players is critical to whether or not we get our deals over the finish line.
“If you were timing the construction materials market, you’re too late.”
Even with a slowdown in residential building, most of the stock prices of these publicly traded companies have bounced upward strongly from their intrayear lows. If you had paid attention to the cycles of this industry, there were some great buying opportunities around the summer of 2006. And I say “were” because if you were waiting for news of the housing rebound to alert you to buy the stocks of companies like Holcim, Vulcan, Oldcastle, Rinker, or many others, you missed the window.
We became worried last year as the market pummeled the stocks of all the major construction materials giants during the spring and summer. But as the year drew to a close, we saw a string of good news that indicates the softness in the sector is behind us:
- Oldcastle has announced preliminary pre-tax profit for 2006 of 1.52 billion euros, up 300 million over 2005. That performance almost paid for its 2.1 billion euro acquisition spree in 2006. Among the first stocks to spook Wall Street in the housing slowdown, it jumped from less than $29 early in 2006 to more than $45 at year-end.
- Vulcan Materials’ exposure to the housing market in the Southwest scared Wall Street, which traded the stock down as low as $65 in mid-July before rebounding to $93 at the beginning of the year. In another sign of confidence, Vulcan’s chief financial officer has been exercising stock options.
- Holcim announced record-breaking results for the first nine months of the year, and indicated the positive trend continued in the fourth quarter. Like Oldcastle, some of this growth is being fueled by its expanding presence in other international markets. The stock is traded on many world markets and has been among the most stable of the group over the last year, but has traded up 24% higher than its 52-week low.
A strong rebound
The stories go on and on. If you overlay the 52-week stock charts of the companies that make up this segment, the drop started as the bad housing news unfolded in the second and third quarters. But most had rebounded strongly by the end of the year.
There have been a few aberrations. Rinker Materials experienced a fall in price and a rally went flat after Cemex announced a takeover bid. Hanson has steadily climbed from its summer lows over continued speculation as a takeover target. One of the few remaining good buys may be U.S. Concrete, a company producing about 9 million cubic yards annually, but is still trading near its 52-week low.
I have been continuously bullish about this industry since the recovery in the first part of the decade, and my feelings haven’t changed. Certain multi-national players are overly exposed to softer housing markets such as Florida, Arizona, and Southern California. But back in November I called for an easing of that softness if gasoline prices fell and stabilized.
Softness in the construction materials sector is behind us.
So far, I have been right, and if the trend continues, the stock prices of these major industry leaders will stay strong. So, if you missed the buying opportunities of the third quarter, you missed the boat.
Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact Pierre Villere at firstname.lastname@example.org or telephone 985-727-4310.
© 2007 Hanley Wood, LLC. All Rights Reserved. Republication or dissemination of “Timing is Everything” (The Concrete Producer, March 2007) is expressly prohibited without the written permission of Hanley Wood, LLC. Unauthorized use is prohibited. Allen-Villere is publishing “Timing is Everything” under license from Hanley Wood, LLC.