With the stock market climbing and good news about the economy appearing on the horizon, it's tempting to think that the economy will soon be out of the woods. Certainly, some of the building material and construction stocks, which had been heavily beaten down by the precipitous decline in spending last year and this year, have made nice headway recently, but does this mean an upturn is really taking hold? Let's take a look at some producers of the dullest but most necessary materials - cement, aggregates, gravels, asphalt components and cement-related products - to see what the future may hold for these companies.

IN PICTURES: 8 Ways To Survive A Market Downturn

Cementing Gains

Few things are more basic in construction than cement, and Texas Industries (NYSE:TXI) makes it. With the decline in residential and commercial construction in 2008 and thus far this year, Texas Industries' stock reflected the resultant earnings drop off with a stock price that went from a high of around $90 a share in 2007 to as low as $12 a share this year, but has since rebounded to $36.50. Although Texas Industries' third-quarter earnings back in March were 37 cents a share compared to 53 cents per share the same quarter a year earlier, Wall Street responded positively anyway, because the company's steep declines appeared to be over.

Trading Vulcan, Martin Marietta Materials
Vulcan Materials Co. (NYSE:VMC), the Alabama-based concrete company, which produces cement, asphalt and aggregates, had been regarded as a sell in the fall after a run up, but is now touted as a buy on Thestreet.com. Why? Despite losing $32 million (29 cents per diluted share) in its first quarter, Vulcan is showing signs of healthy cash generation and is focused on sustaining this. And here's the kicker: government stimulus spending. Determining how much this will contribute to the company's bottom line over the next six months would be guesswork. However, the stock has responded positively to investors' optimism. (Some think that the U.S. government is too big to fail, but one must only look at historical examples to know that it's not true. See Is The U.S. Government Too Big To Fail?)

Martin Marietta Materials (NYSE:MLM), another asphalt, aggregate and cement maker, has also participated in the building materials stocks' rally, despite a rough earnings report for its first quarter, where sales were down 17% and earnings were $10.9 million, down from the year-ago quarter in 2008 of $42.9 million. The general mood suggests that even if economic recovery may not be imminent, at least construction spending has bottomed out and given way to investors' belief that more construction spending, perhaps beyond the known government stimulus packages, will happen soon.

How About Non-U.S. Companies?
Ireland's CRH PLC (NYSE:CRH), which produces cement and many cement-related products, had a challenging year for its earnings, but still did better than many of its large U.S. counterparts. So, despite the global recession, CRH's 20% earnings fall off from 2007 to 2008 might position it for a nice rebound when things pick up. Globally, though, it's not clear whether optimism across the board for building materials is justified. James Hardie Industries Ltd. (NYSE:JHX), the international Dutch cement and cement fiber products firm, has had a worse earnings story than many of the other aggregate companies through the recession thus far, with substantial losses in 2008.

A Caution Ahead
The stock market currently is riding an upsurge from its worst averages and consumer spending is showing some slight signs of coming out of its slumber. Manufacturing and construction spending are also showing signs of life. But despite the recent increase in April, the year-over-year numbers still show a decline; this decline may be slowing, but it's unclear as to what's ahead. (What people buy and where they shop can provide valuable information about the economy. Read Using Consumer Spending As A Market Indicator for more insight.)

A Sobering Look
A less optimistic take stock investors have had is addressed in a BusinessWeek piece, which pointed out that government stimulus spending should help, but construction spending overall is still expected to be soft and commercial construction will still be off - not only for 2009 but for 2010 as well.The softened market has and will continue to affect the credit quality for these companies, as Standard & Poor's has placed negative ratings on several of the companies. If the prediction is correct that an upturn in commercial construction won't truly take hold until the latter half of 2010, then it's clear that the building materials companies are still a long way from fully rising from their aggregate dust and ashes.

Related Articles
  1. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  2. Mutual Funds & ETFs

    Top 5 Bear Market Mutual Funds

    Discover five bear market mutual funds that investors can turn to for generating maximum capital appreciation during a bear market.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Markets

    The Origins of the Chinese Stock Market Collapse

    Learn about some of the reasons for the volatility in the Chinese stock market, including expansion of margin lending and governmental support.
  5. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. The New Deal

    A series of domestic programs designed to help the United States ...
  3. Bear Closing

    Purchasing a security, currency, or commodity in order to close ...
  4. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!