Why USG Corporation Stock Got Built Up Today

USG popped on news about another industrial company.

Feb 12, 2014 at 3:42PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of USG Corporation (NYSE:USG) broke through a wall today, rising as much as 4.3% and hitting a new 52-week high following much better than expected results from Owens Corning (NYSE:OC).

So what: As the largest distributor of wallboard and manufacturer of gypsum products in the United States, any positive news from related companies such as Owens Corning bodes well for USG. Owens Corning makes and sells fiberglass insulation and roofing-related products which tend to have similar demand curves

Owens Corning's adjusted earnings per share quadrupled from $0.11 to $0.44 in the fourth quarter on a sales increase of 10.3%, in part due to improved pricing. CEO Mike Thaman credited the success with "benefiting from a stable and growing global economy and a recovering U.S. housing market." He expects more growth in 2014.

Now what: Similar to Owens Corning's 10.3% sales gains with 300% earnings gains, USG's earnings tend to rise much faster than its sales. As volumes of demand for wallboard improves by relatively small amounts, the market prices that USG realizes tend to skyrocket. All other things being equal, for every $1.00 increase in the price of wallboard is $1.00 that tends to the bottom line (pre-tax).

If Owns Corning's outlook proves to be correct, look for wallboard prices to continue to escalate and USG's earnings to potentially explode. Last year was the first time USG reported full-year net income since 2007, right before the housing collapse. Don't be surprised to see analysts raise their per-share guidance for full-year-2014 earnings.

Analysts currently expect a 158% rise in earnings per share for this year, which are currently at $1.73 compared to $0.67 last year. USG has a forward P/E under 20, even less if analysts raise estimates -- this looks cheap when considering realized and further expected earnings growth. However, Fools need to be cautious for the long term; the pendulum swings both ways. Whenever residential and commercial construction activity starts to get even mildly weak, wallboard prices usually crash as fast, or faster, than they went up.

Be prepared for the next housing crash
Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Nickey Friedman owns shares of USG. The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers