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5 Construction Supply Stocks to Consider for 2012

The stock prices of homebuilding companies have been on fire. Therefore, it seems natural that the companies that provide supplies to the homebuilders should also be doing well. This article will examine five construction supply companies to see if they can benefit from the upturn in the home construction business. Most of these companies are not household names, but they may be good selections for your stock portfolio.

US Home Systems (USHS) has a market cap of $86.31 million with a price to earnings ratio of 19.35. The stock has traded in a 52 week range between $3.85 and $14.81. The stock is currently trading around $12. The company reported third quarter revenues for the period ending on September 30th, in the amount of $43.5 million compared to revenues of $39.5 million in the third quarter of 2010. Third quarter net income was $1.6 million compared to net income of $620 thousand in the third quarter of 2010.

One of US Home’s competitors is Builders FirstSource Inc. (BLDR). Builders is currently trading around $4 with a market cap of $370.6 million and a negative price to earnings ratio. Builders does not pay a dividend versus US Home whose dividend yields 0.6%.

US Home designs and manufactures home improvement products. The company increased third quarter revenues by 10% and net income by 158%. The company sales its products exclusively through the Home Depot (HD) HD)H which limits its growth potential. The company had strong growth over the last year but in the third quarter growth slowed. Third quarter revenues were down by $200 thousand and net income was up by only $20 thousand from the prior quarter. The stock price is up by 168% over the last 52 weeks, but is down by 22.5% since March 1st. The stock has had a terrific run up but appears to be a bit overbought. I expect that this stocks price is likely to continue to drop and that a short side trade might be advisable. Prospective investors should do further research.

Acuity Brands (AYI) has a market cap of $2.5 billion with a price to earnings ratio of 24.5. The stock has traded in a 52 week range between $33.13 and $64.82. The stock is currently trading around $63. The company reported first quarter revenues for the period ending on November 30th, in the amount of $474 million compared to revenues of $425 million in the first quarter of 2011. First quarter net income was $30 million compared to net income of $24 million in the first quarter of 2011.

One of Acuity Brands competitors is Cree (CREE). Cree is currently trading around $31 with a market cap of $3.6 billion and a price to earnings ratio of 54.75. Cree does not pay a dividend versus Acuity whose dividend yields 0.8%.

Acuity Brands designs and markets lighting solutions and lighting fixtures. The company increased first quarter revenues by 11% and net income by 25%. Acuity Brands executives hope that the company will benefit from improving trends in the housing market. The company’s stock has been trending slightly higher and has a beta of 1.58. The stock is currently trading above its 50 day, and 200 day moving averages and is up by 10.3% over the last 52 weeks. With relatively high valuations, (price to earnings ratio 24.5/price to book ratio 3.3) and no apparent catalyst, it seems that this stock does not have much of a short term upside. Prospective investors should do further research.

Owens Corning (OC) has a market cap of $4.3 billion with a price to earnings ratio of 16. The stock has traded in a 52 week range between $18.67 and $38.94. The stock is currently trading around $36. The company reported fourth quarter revenues of $1.2 billion compared to revenues of $1.1 billion in the fourth quarter of 2010. Fourth quarter net income was $50 million compared to net income of $-110 million in the fourth quarter of 2010.

One of Owens competitors is PPG Industries Inc. (PPG). PPG is currently trading around $94 with a market cap of $14.2 billion and a price to earnings ratio of 13.6. PPG pays a dividend which yields 2.4% versus Owens which does not pay a dividend.

Owens manufactures and sells composite and building materials systems. The company increased year-over-year fourth quarter revenues by $100 million and net income by $160 million. The company had a poor fourth quarter in which its revenues dropped by 22% and its net income dropped by 148% from the third quarter. Despite the poor fourth quarter earnings, the stock has been caught up in the momentum of the housing construction sector and has increased in price by 13.8% since March 1st. Even though Owens stock price has moved higher over the course of the last month its valuation (price to book ratio 1.18) is still reasonable. I would watch Owens because if the company has a strong first quarter earnings, the stock is priced to move even higher. Prospective investors should do further research.

Home Depot (HD) has a market cap of $75.5 billion with a price to earnings ratio of 20. The stock has traded in a 52 week range between $28.13 and $49.93. The stock is currently trading near its 52 week high at around $49. The company reported fourth quarter revenues for the period ending on January 29th, in the amount of $16 billion compared to revenues of $15.1 billion in the fourth quarter of 2011. Fourth quarter net income was $774 million compared to net income of $587 million in the fourth quarter of 2011.

One of Home Depot’s competitors is Lowes Companies Inc. (LOW). Lowes is currently trading around $31 with a market cap of $38.1 billion and a price to earnings ratio of 21.49. Lowes pays a divided which yields 1.8% versus Home Depot whose dividend yields 2.3%.

Home Depot operates a chain of 2,252 home improvement stores. The company increased fourth quarter revenues by 6% and net income by 32%. The company’s operating margin (9.46) is higher than its competitors and “JP Morgan recently noted that Home Depot's focus shifting to better understanding and servicing the customer through CRM (Customer Relationship Management) investments/initiatives, and supply chain improvement program should continue to lift its margin into 2012.” The company grew 2011 year-over-year net income by 11% and “Analysts model a 14.6% per annum growth rate over the next five years.” The company’s stock has benefitted from the positive move of the home construction sector and is up by 35% over the last 52 weeks. Home Depot is expected to have strong first quarter earnings because the recent warm weather has helped to drive up sales. However, after the run up in the stock price, the stock has a limited near term upside. Prospective investors should do further research.

Beacon Roofing Supply (BECN) has a market cap of $1.2 billion with a price to earnings ratio of 17.5. The stock has traded in a 52 week range between $14.59 and $25.79. The stock is currently trading near the top of its 52 week range at around $25. The company reported first quarter revenues for the period ending on December 31st, in the amount of $490 million compared to revenues of $404 million in the first quarter of 2010. First quarter net income was $19 million compared to net income of $10 million in the first quarter of 2010.

One of Beacon’s competitors is Headwater (HW). Headwater is currently trading around $4 with a market cap of $251.4 million and a negative price to earnings ratio. Neither Headwater nor Beacon pays a dividend.

Beacon markets roofing supplies for residential and non-residential buildings. The company increased year-over-year first quarter revenues by 21% and net income by 90%. In the company’s February 9th first quarter earnings call, Beacon’s CEO Paul Isabella said, “Once again our company-wide residential and non-residential product sales both showed double-digit percentage increases for the quarter, while our complementary product sales were down slightly. Our roofing businesses continued to benefit from higher volume, including sales from increased residential re-roofing activities in all of our geographic regions, and from industry-wide price increases that mostly occurred during the second half of last year.” Beacon which is the largest distributor of commercial roofing supplies is now benefitting from the upturn in the residential construction business. This shows that the company has a solid business balance. Beacon’s stock price is up by 26% over the last 52 weeks, and its valuations (price to earnings ratio 17.5/price to book ratio 2.07) are still relatively low. If the economy continues to improve, Beacon’s earnings and stock price will move higher. Prospective investors should do further research.

About the author:

Dividend King
I am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.

I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.

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