Solid Cement Stocks
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Cement is pretty much the cornerstone of civilization's infrastructure. It's vital to building anything from roadways, to buildings, to docks. Therefore it is the cement companies that are most likely to benefit from the economic recovery and the return to large-scale building projects.
Cheaters Never Prosper
CRH PLC (NYSE: CRH) is a good looking company on first glance. Headquartered in Ireland, CRH is one of the larger companies on this list and is trading at a moderately low earnings multiple (17.95) and a very low multiple of its book value (1.1). But then I read up on some of the accusations of price fixing, bribery and anti-competitive shadiness that CRH appears to have been practicing as far back as the late 1960's. No wonder it's cheap -- a lot of folks don't want to mess with the company. While I respect the 2.4% dividend, I really can't understand how a company that looks for all the world to be cheating at every opportunity still only turns a 3.3% profit. I'll pass.
Quality at a High Price
Cementos Pacasmayo S.A.A. (NYSE: CPAC) is the 2nd biggest Peruvian cement company (and I admit that I initially confused cement and concrete -- not the same thing). A fairly small company at a $1.54 billion market cap, I like that Pacasmayo has a 13% profit margin and a strong lock on the northern and eastern sections of Peru. Frankly, I'd like to see the company become a bit cheaper (it's trading at 25 times earnings right now, which ain't cheap in my book) and move a bit further outside of its region. The company has a solid 2.2% dividend, but it almost looks like Pacasmayo isn't as hungry for growth as it could be. I'll pass for now.
Eagle Materials (NYSE: EXP) is pretty heavily diversified among cemented materials. Wallboard, cement, concrete and most things gypsum seem to make up its primary product lineup, so it has a lot of options in the construction field. I like that Eagle only has a 10.9% debt/equity ratio and the flexibility that that grants, and the fact that it pays a low dividend actually says good things about Eagle's growth prospects. I really hate that it's trading at just over 58 times earnings, though. Holy cow! Unless that 7.8% profit margin is about to explode, I don't see the justification for paying so much. It's a solid company, but it's just too rich for my blood.
Moving Past the Bad Points
James Hardie Industries (NYSE: JHX) has a checkered past, but it seems to have largely gotten past the bad old days. Asbestos was a big part of concrete for a long time, but it appears that James Hardie actually developed a fiber cement that gets the benefits of asbestos without having to use that deadly garbage. Of course, the damage from asbestos exposure continues. Here's where it gets tricky. Do I think the company is going to keep on operating despite numerous asbestos-related lawsuits? Yes; I'd say a 44.2% profit margin and a $20.98 billion market cap are enough to keep James Hardie in business. But do I think the company is a worthwhile buy today? Not really. I tend to steer clear of any company trading for more than 15-20 times its earnings, and James Hardie's 37 earnings multiple is just a bit too pricey for my tastes. I can deal with bad PR, but a bad price turns me off. I'd also need to look at why the stock screener is reporting a 338.6 book value multiple. That's just nuts, unless it takes into account very conservative estimates of the potential liabilities from all those asbestos-related lawsuits.
It's Just Too Expensive
The cement and concrete industry appears to be doing reasonably well. The worst of that recession business is clearly past. Unfortunately, investor hopes appear to be keeping prices outside of a range where I would recommend buying them at the moment.
pongun has no positions in the stocks mentioned above. 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!