Top Picks 2011: Owens Corning (OC)

"From the early 1950s through the early 1970s some of the company's insulation products contained asbestos.

"This led to massive legal liabilities in the 1990s, which forced the company to file for bankruptcy in October 2000. Like most of the asbestos-related cases, Owens Corning's Chapter 11 proceedings were protracted and contentious.

"The company finally emerged from Chapter 11 in October 2006, just as the residential construction market was beginning to soften.

"Shortly thereafter, commercial construction faltered as well. The stock is only now getting back to the levels where it first traded after the exit from bankruptcy.

"Owens Corning is a very high-quality company, but its markets remain quite depressed. It is the North American leader in residential and commercial insulation, as well as in a number of roofing products.

"One of the bright spots for the company is composites, where it is a global leader. Moreover, Owens Corning has strong positions in some of the fastest growing international markets such as Brazil, Russia, India, and China.

"The company has a decent and improving balance sheet. It has solid cash flows and has reduced net debt by $500 million over the past five quarters.

"Owens Corning is also using some of its cash flow to directly benefit shareholders through stock buybacks-$100 million during the last quarter alone.

"The stock is currently trading at about 20 times estimated 2010 earnings, which looks very reasonable given the weakness in the construction industry. We expect profits to grow nicely as the building sector gradually recovers."

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