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Opportunities In Cement
Cement stocks continued to show effects of the weak economy in 2010, as the construction and infrastructure business has been well off from pre-recession levels. Revenue and earnings have faltered, while the stock prices of cement companies have languished. What are the possibilities that cement stocks are laying the foundations for gains?
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Problems Lingered
Throughout the year, cement companies continued to report sluggish business. Eagle Materials (NYSE:EXP) recent second quarter showed a 38% decline in operating earnings from the previous year's quarter in its cement segment, although charges contributed to this. Still, Eagle's cement revenue declined 7%. Eagle Materials has been struggling to build back its business to 2008 levels, as have its competitors.
Cement Woes Weigh
The same tale can be told for global giant Cemex (NYSE:CX), which has seen revenue fall in each of the last two years. Revenue and income has been the victim of weak industry conditions globally, as CRH (NYSE:CRH) has fought to stay in the black, while James Hardie Industries (NYSE:JHX) and Texas Industries (NYSE:TXI) have had losing years.
Was There Any Good News?
While there is divided opinion on the Street as to how the cement industry's prospects shape up, beneath the ugly numbers there have been some good signs. Cemex, although it's still wrestling with formidable debt, as it attempts to pay back $9.7 billion from an acquisition, recently showed increased sales volumes in Mexico, Africa and Egypt. With an expected recovery looming, some analysts feel the stock is attractive now.
James Hardie Industries recently was the recipient of a federal stimulus grant in Illinois for fiber cement recycling. Texas Industries resumed construction in October of a cement plant expansion, a signal of at least a more optimistic view of the economy's trend. Irish-based CRH was cited as potentially attractive because its business is not tied to the Irish economy the way Ireland's banks are; instead its operations are fully global.
A Matter Of Time, Patience
While Cemex and the other major firms still await a fuller recovery in the construction and infrastructure industry for their businesses to completely rebound, the industry and the stocks have likely bottomed out. A company spokesman for Cemex maintained that the fourth quarter would see a turning point in sales. Analyst estimates always to be viewed with caution show CRH growing its earnings again over the next couple of years. Call it guarded optimism for an industry recovery.
The Bottom Line
Cement stocks can be just the kind of situation that appeals to value investors, so value investors might want to poke around and examine these companies. As these stocks trade at depressed prices, they are in potential bargain territory for a prudent investment in the long-term recovery of the industry. (Learn why it may be profitable to invest in beaten down stocks in Buy When There's Blood In The Streets.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 5 "New" Rules For Safe Investing
Problems Lingered
Throughout the year, cement companies continued to report sluggish business. Eagle Materials (NYSE:EXP) recent second quarter showed a 38% decline in operating earnings from the previous year's quarter in its cement segment, although charges contributed to this. Still, Eagle's cement revenue declined 7%. Eagle Materials has been struggling to build back its business to 2008 levels, as have its competitors.
Cement Woes Weigh
The same tale can be told for global giant Cemex (NYSE:CX), which has seen revenue fall in each of the last two years. Revenue and income has been the victim of weak industry conditions globally, as CRH (NYSE:CRH) has fought to stay in the black, while James Hardie Industries (NYSE:JHX) and Texas Industries (NYSE:TXI) have had losing years.
While there is divided opinion on the Street as to how the cement industry's prospects shape up, beneath the ugly numbers there have been some good signs. Cemex, although it's still wrestling with formidable debt, as it attempts to pay back $9.7 billion from an acquisition, recently showed increased sales volumes in Mexico, Africa and Egypt. With an expected recovery looming, some analysts feel the stock is attractive now.
James Hardie Industries recently was the recipient of a federal stimulus grant in Illinois for fiber cement recycling. Texas Industries resumed construction in October of a cement plant expansion, a signal of at least a more optimistic view of the economy's trend. Irish-based CRH was cited as potentially attractive because its business is not tied to the Irish economy the way Ireland's banks are; instead its operations are fully global.
A Matter Of Time, Patience
While Cemex and the other major firms still await a fuller recovery in the construction and infrastructure industry for their businesses to completely rebound, the industry and the stocks have likely bottomed out. A company spokesman for Cemex maintained that the fourth quarter would see a turning point in sales. Analyst estimates always to be viewed with caution show CRH growing its earnings again over the next couple of years. Call it guarded optimism for an industry recovery.
The Bottom Line
Cement stocks can be just the kind of situation that appeals to value investors, so value investors might want to poke around and examine these companies. As these stocks trade at depressed prices, they are in potential bargain territory for a prudent investment in the long-term recovery of the industry. (Learn why it may be profitable to invest in beaten down stocks in Buy When There's Blood In The Streets.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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