Vulcan Materials (NYSE: VMC) is another one of those solid business models that Wall Street treated rudely when the recession hit. Vulcan's sin? It is a leading producer of cement in Florida. What Wall Street 'forgot' was that VMC is also a major producer of asphalt and concrete, and that it shipped aggregates to 23 states, the District of Columbia, Mexico, the Bahamas, Canada and Chile.
True, Vulcan is likely to post a 15-20% revenue decline in FY2009, but does that warrant taking the stock down to $34 from $100? Hardly.
Lately, institutional investors have bid-up VMC after discovering that at least some semblance of the old U.S. economy will return with the recovery, and that means asphalt and cement demand will ramp-up, aided by Obama administration infrastructure spending on highways, bridges, roads, schools and other public facilities. And that should aid margins. The First Call FY2009/FY2010 EPS estimates for VMC are $1.13 to $1.92.
The risks are obvious enough. Any hint of a protracted U.S. recession extending to FY2010 or a slow-down in the release public infrastructure spending will send Vulcan's shares below $30, but the calculation here argues that a bottom is in place at $33.
Stock Analysis: Vulcan Materials is a moderate-risk stock. Consider buying a 25% position in VMC now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your VMC position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $22.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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