1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Federico Zaldua
Federico Zaldua
Articles (96) 

Hormones Are Taking Over

September 10, 2013 | About:

According to Warren Buffett, the housing market is finally starting to grow after its catastrophic meltdown. In his own words, “Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while 'doubling-up' may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.” I strongly agree with Berkshire Hathaway (NYSE:BRK.A)'s chairman.

Housing and, hence, construction should outperform most sectors in the coming years. After all, hormones are indeed taking over. According to data from the Center for Disease Control and Prevention, America's fertility rates stabilized for the first time in over five years. Here I want to take a look at my favorite housing-related stocks.

Betting on Cement Demand Growth

One of my favorite ways to play the housing game is the Mexican cement champion Cemex (NYSE: CX), a stock held by billionaire investor George Soros. Cemex, which makes 29% of its EBITDA in the US, is paying off debt fast after having gone through an acquisition spree during the real estate boom that went bust in 2008.

With the aim of reaching its 2014 net debt to EBITDA target of 4.5 times, Cemex sold 29% of its Latin American operations (for $1.1billion), sold off non-core assets across the globe and re-structured its debt profile.

The U.S. is the crucial playground where the company is expecting to grow its volumes and recover its former financial strength. In the U.S., Cemex expects to grow year-over-year cement volumes by as much as 13% this year and by as much as 10% in 2014. Actually, I expect strong momentum to gain traction towards the end of 2013 as pricing across its portfolio continues to ameliorate and cost reduction strategies maintain margins on an upward trend.

Even when I expect the company to continue generating losses until 2015, I also do expect free cash flow to grow beyond the 100% mark between 2013 and 2014. Trading at 2013 9.5 times EV/EBITDA, I think its time to start looking at Cemex in a serious way.

Hormones Will Help This Company's Recovery

Beazer Homes USA
(NYSE:BZH), the diversified home-builder which is held by Mario Gabelli from GAMCO Investors, is my top play among single-family and multi-family home builders. While I believe higher interest rates should slow the pace of margin expansion for Beazer, I also believe higher top line growth will more than compensate interest rate effects on net earnings. As a matter of fact, I think gross margins are going to go north of 17.5% by the end of 2014 while top-line should keep on growing at a rate of 25%.

At this rate, I forecast Beazer to generate its first positive net earnings in many years as soon as 2014, when EBITDA should grow by more than 95%. At this current point in time, I think Beazer is the ultimate growth play among home-builders.


Following the oracle of Omaha or George Soros in never a bad idea when you are trying to put your money to work. I think both Cemex and Beazer shall profit enormously from the on-going housing recovery. They are both good options if you plan to add “housing and construction” to your portfolio.

Rating: 3.3/5 (3 votes)


Please leave your comment:

GuruFocus Mobile App

User Generated Screeners

georgebornsteinNets] nets
philippeSmall cap good potentiel
DBrizanbuffet beater
DBrizanWFC RY TD BNS beater
Gina ZhangDiv Yield
UVInvestorsGrowing High ROE
niregunSP performer
morsy.hananGuru undervalued
woodman1024Safe Large Stocks
yukondeltagAcquirer's Multiple - All Cap

Select portfolio(s):

  • Loading...

Why you are interested?

Your selection and notes will be stored in your portfolio.

Login to add portfolio
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)