[OT] Concrete as a hedge for Oil??!!
Although I will renounce the title of "Master of Financial Discourse", I will own up to owning three concrete companies -- two of which are located in Texas.
They are: Southdown (SDW); Lone Star Industries (LCE); and Texas Industries (TXI), which makes steel as well as concrete products.
How did I get into concrete?
1) It was boring, which has its advantages. For example, crazies are not attracted to boring industries.
2) In this industry, there were many apparently well-run and profitable companies, with beautiful balance sheets, loads of free cash flow, excellent growth rates, nice low p/e's and low PEGS, etc. It's just a matter of going "eeny, meeny, miney (sp.?), mo" and then picking one or two with your eyes shut. You won't go wrong.
3) Finally, the industry itself was experiencing a boom, and concrete was steadily moving up in the IBD industry rankings. As a sector rotation play, it seemed to make sense to buy concrete companies, especially in view of the fact that they were such good companies in themselves.
Would I recommend that other people buy concrete as a hedge (or for any other reason)?
1) Alski is right that the industry has been going through a mini-correction (thanks to me, no doubt -- I hex everything!). The stocks I bought are all down from the time I bought them, although they are still up for the year. LCE is up 36% for the year; TXI is up 25%; SDW is up 8.5%. One that has bucked the trend this past month (better than CXP) is Florida Rock (FRK).
2) But it is not just concrete that has been correcting. Basic materials as a whole have struggled this month, and the housing industry also. Indeed, it has not been a good month for any industry I personally have a stake in, except for pharmaceuticals. At the same time, I would not advise anyone to go into pharmaceuticals right now, because by any conceivable standard those companies are all very, very overvalued.
3) I still think concrete looks like a good bet. Read Southdown's annual report, which I think is on its web site, to get an idea about expansion opportunities for the concrete industry (e.g., the use of concrete rather than asphalt in road construction). But I would agree with Alski that it might be best to wait a bit before placing that bet. The question(s) I would ask is why the correction in basic materials, home construction, furniture, etc.? And how long is it expected to last (if anybody is willing to guess)? Is "consumer confidence" eroding?
jbe |
