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Just take the S out of the ticker and you'll have the sound I make every time I check in with this embattled construction materials maker.

USG (NYSE: USG  ) turned in its seventh consecutive quarterly loss this week, as sales declined another 36% from already-hurt 2008 levels. The gypsum industry is operating at about 50% of capacity and could contract even further. USG management sees the residential construction and remodeling markets stabilizing, noting that the scale of the collapse to date makes further contraction virtually unthinkable. The commercial construction market, however, has devolved into a major cause for concern. Management now expects non-residential construction to "continue declining for the next several quarters."

I implored Fools to run away from this sector last year, and the demand for construction materials has only continued to tank since. Until you see the parking lots filling up at your local Lowe's (NYSE: LOW  ) or Home Depot (NYSE: HD  ) , I see no need to park your investments in this fundamentally impaired segment of the American economy. CEMEX   (NYSE: CX  ) is still just crawling along, Weyerhaeuser (NYSE: WY  ) has slashed its dividend and closed another lumber mill, and railroads are carrying 32% lower volume in forest products than this time in 2007. Put simply, there remains no identifiable source of strength to propel this sector out of these doldrums anytime soon.

I know it's tempting to fish for bargains within such an unloved sector, but chasing these stocks is more like noodling for giant catfish in a bayou swamp: You're risking a nasty bite. All this talk of stabilization in the residential market is likely to boost the likes of D.R. Horton (NYSE: DHI  ) and Pulte Homes (NYSE: PHM  ) , which I would view as something of an escape hatch for weary investors. As my readers know, I'm still bracing for round 2 of the mortgage meltdown.

Thanks in part to that generous infusion of capital from 34.6% stakeholder Warren Buffett, USG's liquidity position appears stable for the time being. With $495 million at its disposal, the company could conceivably absorb several more quarters similar to this second-quarter disaster before its viability as a going concern might again come into question. Buffett's commitment to the company suggests a welcome failsafe, but I maintain that investors have too many opportunities in more promising sectors to waste time and capital waiting for construction to recover.

Further Foolishness:

More than 1,800 members of Motley Fool CAPS, including 554 All-Stars, expect four-star pick USG to outperform the S&P 500. Whether you think USG has the "eye of the tiger" or one foot in the grave, I know Fools would like to read your thoughts on this and other companies.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He owns no shares in the companies mentioned. CEMEX is a Motley Fool Stock Advisor pick and a Global Gains selection, and the Fool owns shares of it. The Home Depot, Lowe's, and USG are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy sings quintessential songs from the 1980s in the shower.

Read/Post Comments (1) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 23, 2009, at 5:07 PM, OptionXpert wrote:

    In the conference call Ivy Zelman's comments on pricing are especially note worthy. USG seems to have allowed L&W to undermine industry pricing. I believe they'll look back in the future and regret they ever allowed that to happen.

    They've lost 95 million in the first 6 months of the year which are normally stong for housing. How much will they lose in the last 6 months of 2009 which are usually weak for housing. Especially now that they have lost the ability to raise prices. If they do try to raise prices they'll probably lose market share. They also have more asset writedowns to do by year end as they outlined on page 23 of their 10Q. These writedowns should impact their book value significantly.

    Housing can't recover as long as unemployment continues to climb.

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