The shares of Vulcan Materials (VMC) have accelerated out of a low near $42, hence I'm removing my "stand aside" recommendation and I'm now confident that Vulcan can retake higher ground from here. I first wrote about Vulcan on June 3, 2009, at a price of $46.28.
Institutional investors have been cautious with Vulcan, a major producer of construction aggregates, asphalt and concrete, given the uneven start to the U.S. recovery.
Vulcan's sin: being a leading producer of cement in Florida, a market that tanked big-time when the housing boom ended. What Wall Street "forgot," was that Vulcan is also a major producer of asphalt and concrete, and that it shipped aggregates to 23 states, as well as to Mexico, the Bahamas, Canada and Chile.
Look for Vulcan's revenue to increase 7% to 10% in 2010, primarily due to highway construction projects and related public infrastructure work; housing-related work will improve slightly, but it is a clouded forecast, given the uncertain nature of the U.S. housing sector's recovery.
The First Call FY2010/FY2011 EPS estimates for Vulcan are 39 cents to $1.41. The 2010 EPS estimate looks about 10& to 15% low, according to my analysis.
Technically, as noted, Vulcan's shares held support near $42, and have since moved back above the key 50-day moving average.
2010 Outlook: I view Vulcan as a long-term play, but if investors are looking to sell VMC within the year, I wouldn't buy the shares, as the 1-year risk/return is not favorable.
Stock Analysis: I consider Vulcan Materials to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in VMC now; then buy another 25% in one month if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my VMC position before June 2010 and I'd put a sell/stop loss at $37.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.