Mason Hawkins Just Sold Some Of This Company, Should You Follow Him?
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Vulcan Materials (NYSE: VMC) saw Mason Hawkins of Southeastern Asset Management unload some of his shares per a 13D filing with the SEC last week. At the end of the third quarter, Southeastern owned 12.1 million shares. The recent sale puts Southeastern’s ownership to 9.9 million – an 18% sell off. Southeastern now owns 7.7% of Vulcan, which is down from its previous 9.3% ownership. Hawkins founded Tennessee-based Southeastern Asset Management in 1975, which manages roughly $32 billion in assets and remains an employee-owned firm.
Generally speaking, Southeastern takes a long-term view, not focusing on the interim ups and downs of the markets. We believe that Southeastern is taking the stand that the long-term trend for industrials might be in decline. The Vulcan sale comes after Southeastern announced a sell off of other major materials company Cemex SAD de CV (NYSE: CX) last month. Southeastern now owns 13% of the cement company, versus its previous ownership of 17%. Cemex expects to see cement volume up 8.5% in FY2013, but earnings remain uncertain, as shares trade at incalculable trailing and forward P/E ratios. To help boost its capital structure, Cemex expects to continue its asset sale campaign through 2015. Sales of non-core U.S. assets will remain at a target of $40 million per year over this time.
When looking at Vulcan, analysts forecast the company to post a revenue decrease of 10% in 2013 after a relatively flat year in 2012. This comes on continued weakening demand for construction aggregates due to industry-wide weakness. Vulcan has embarked on cost reductions to help mitigate the volume decline. Government stimulus spending slowdowns and a delayed ramp up in highway spending are expected to be other key drags on Vulcan’s earnings. Billionaire Steven Cohen of SAC Capital was also taking some of his shares off the table, dumping 70% of his stake during 3Q (check out Cohen's top moves).
Vulcan is the nation's largest producer of aggregates in the United States and recently denied a bid from Martin Marietta Materials (NYSE: MLM) – the second largest aggregates producer. Martin announced a hostile offer for Vulcan nearly a year ago that equated to around $38.50 per share for Vulcan shareholders. The deal was refuted by Vulcan, and for good reason; the stock now trades north of $50. There is speculation that Martin might be interested in reassessing a deal that would bring the two companies together in the future. Any such deal would provide vast cost synergies, but we remain cautious for the time being.
Hawkins was not only an investor in Vulcan and Cemex during 3Q, but his firm also had a 6.2 million share position in Martin Marietta, making up Southeastern’s 18th largest 13F holding. Martin Marietta is expected to see sales weakness as well, down 13% in 2012, but unlike Vulcan’s expected sales decline in 2013, Martin expects growth of 10%. Martin also appears to provide investors a bit more downside protection when it comes to economic uncertainty, compared to Vulcan. Martin pays a 1.75% dividend yield, where Vulcan’s is virtually nonexistent, and Martin is a bit cheaper at 1.7x sales, compared to Vulcan’s 2.3x. Hawkins has good company in Martin Marietta as billionaire Ken Griffin - founder of Citadel Investment Group - upped his stake over 50% during the third quarter (see Ken Griffin's newest picks).
Eagle Materials (NYSE: EXP) trades at a high P/E of 50x, but this is relatively in line with Martin (50x) and Vulcan (70x). Digging deeper, Eagle’s 20x forward P/E appears to make its valuation much more attractive. Despite being up over 100% year to date, this cement company appears to be a much better buy than Cemex. Eagle also pays a small but steady dividend that yields 0.75%. Billionaire Jim Simons is intrigued by Eagle Materials, and upped his stake 50% during the third quarter (check out Jim Simons' top picks).
Taking a look at a bonus play, we can see that CRH PLC (NYSE: CRH) is a diversified building materials company with operations in high growth countries such as China and India. At only 17x earnings, CRH is a bit more attractive than the other materials companies listed. This materials company also has the best growth prospects with a five-year expected EPS growth rate of 20%.
We believe that Hawkins and Southeastern are taking the stance that a prolonged slowdown in the materials industry could continue into the immediate future, and that certain companies might be out of line from a valuation standpoint – namely Vulcan and Cemex. Both stocks are up over 50% during the last six months amidst an uncertain recovery, and we believe there might be better investments with exposure to the U.S. construction industry.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!