Is now the time to dabble in construction related stocks? In an unstable market, insider buying can be a great indicator of the direction a company is headed. Generally, insiders don't buy stock unless they think their business and their company has a bright future.
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With that in mind, I ran a search to reveal construction-related companies that had insider buying in the last 12 weeks. Below are some of the results.
|Company||Market Cap (millions)||Number of Insider Buys (12 weeks)|
|Dycom Industries (NYSE:DY)||332.53||2|
|Jacobs Engineering Group (NYSE:JEC)||5118.98||1|
|Owens Corning (NYSE:OC)||2046.47||12|
|Screen run on May 8, 2009|
Owens Corning on the Rise?
Shares of Owens Corning have certainly seen better days. In spite of bouncing nicely off their lows, the stock still trades about 55% off its 52-week high. However, the following positives suggest good times will again roll for the Ohio-based building products maker.
First, in late April the company reported better-than-expected first-quarter earnings. This gain may attract some retail and institutional investor attention in the weeks ahead. Second, in its first-quarter release, Owens Corning's chief executive, Mike Thaman, reported: "We are taking aggressive actions to reduce costs and to cut capital spending by a combined $300 million." Thaman remained positive, stating "These reductions and strong roofing profits that use our net operating loss give us confidence that $150 million in free cash flow this year is achievable".
Data also shows that in the last 30 days, the earnings estimate for 2010 has ticked up from 59 cents to 76 cents. Obviously, it's a bit early to tell for sure if it will hit that target, but it's nice to see the estimate headed in that direction. Keep in mind that the shares trade north of $15, so the stock isn't exactly cheap on a price-to-expected earnings basis.
Finally, there were a total of 12 insider buy transactions (including indirect and direct transactions) in as many weeks. A look at the breakdown of the action reveals that 11 different insiders were involved. This diversity suggests confidence that better times may lie ahead.
From a big-picture perspective, the company offers products that generally go part and parcel with construction such as insulation and masonry products. As populations increase, the demand for construction materials like these will increase as well.
The Michigan-based company offers some of the nuts and bolts of a house, such as faucets and cabinets. And perhaps not surprisingly, at the time of writing the stock is trading at less than half of its 52-week high. However, there are indicators that the company and the stock are going places.
For example, Tim Wadhams, Masco's chief executive, plunked down more than $150,000 on the stock in March. Although he purchased at a lower price - $3.70 per share- the transaction is worth paying attention to because it is such a large dollar amount. Again, investing that much money usually indicates optimism.
Next, consider Masco's dividend. The company cut its quarterly dividend from 23.5 cents to 7.5 cents, a smart move that should allow for more breathing room. According to a March 27 release from Masco: "This action will save the company approximately $240 million cash on an annualized basis." Note that at 7.5 cents, and assuming the stock price held at its current level, the company would still have a forward dividend yield of about 2.9%.
One thing that isn't all that impressive is the short-term earnings outlook for the company. Masco is expected to lose 23 cents this year and make just 19 cents a share next year. In other words, it could take a few years before the company generates meaningful bottom line numbers.
Long-term, being bullish on construction stocks seems advisable. Owens Corning and Masco are large companies worth looking at for the long haul. They both could have solid upside in the next 24 months if the macroeconomic outlook continues to improve. (For more on insider buying, see Can Insiders Help You Make Better Trades? and When Insiders Buy, Should Investors Join Them?)