Today’s recommendation, from Stealth Stocks’ Dennis Slothower, has already climbed over 140% over the past 12 months. But like other housing- and construction-related companies, this stock began that ascent from the bottom of an incredibly deep trough... so it could still have a ways to go before peaking. Slothower thinks so, in fact, as he explains below, he thinks the stock is currently undervalued. Here’s his full recommendation.
“Eagle Materials, Inc. (EXP, $52) was founded in 1963 as a building materials subsidiary of Centex Corporation. [The company’s] primary businesses are the manufacture and distribution of gypsum wallboard and the manufacture and sale of cement. [One of Eagle’s four] gypsum wallboard plants has been temporarily idled since 2009, pending market demand improvement. [Eagle’s] products are commodities that are essential in the construction and renovation of houses, roads, bridges, commercial and industrial buildings and other, newer-generation structures like wind farms.
Why I Like It
“EXP is seeing tremendous growth in supplying the building industry with cement, gypsum wallboard, recycled paperboard, concrete and aggregates from 25 facilities across the U.S. Following Hurricane Sandy, EXP is poised for explosive growth. In the most recent quarter, EXP saw revenues of $168 million, an increase of 22%. Its segment operating earnings of $41 million were up 146%. Huge demand for gypsum wallboard, cement and concrete to rebuild damaged homes should boost the fortunes of EXP over the next 12 months.
Projection
“According to my numbers, EXP should be selling in the $80 range. It is currently trading around the high $50s; so EXP has large upside potential. Place a sell stop at 25% below your entry price. As the stock rises, continue to raise your stop so that you are trailing the Friday close by 25%.”
- Dennis Slothower, Stealth Stocks, November 2012