This aggregate business is slated for double-digit growth—and maybe more—if infrastructure spending advances as predicted with the new presidential administration.
Eagle Materials (EXP)
From Positive Patterns
Eagle Materials (EXP) operates in five separate segments: cement, gypsum, recycled paperboard, oil & gas Proppants, and then just plain old concrete/aggregates. Cement companies have a habit of being bought out in up-cycles (and I think that is in front of us).
So, my ‘guess’ and it’s just that—is that this is a good trade for the next 3-5 years as the building cycle turns up, and I would bet you that the company also gets bought out. Its largest shareholder is Ash Grove Cement Company (ASHG), and one possibility, and a way to gain more visibility for ASHG is for Ash Grove to buy EXP.
The other and more likely possibility is that some foreign company buys EXP out, which has been the pattern in the past for cement companies. There are not that many legitimate value targets left in the cement area that are publicly traded Many have been bought out in the last 20 years.
In the last 10 years (on average), we have built only one-half the number of new homes that we did compared to 1995 – 2005, so we know the cement business will get a big boost if homebuilding starts to recover. And I think it will. Beginning in 2017 and especially by 2018, things should show marked improvement in this area, and that will surely help EXP.
EXP, a definite cyclical, shows a positive pattern with promise and is still in a good buy area fundamentally. I would buy EXP up to $105 but why wait? I would also note that when EXP does break the old highs of $105, we should see a new/growth phase in this very cyclical stock, so owning it the next 3-5-7 years could be a rewarding experience. And I do not think there is much downside either, not at these prices.
Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, December 2, 2016