If investors want to own stocks leveraged to a recovery in new home construction in the U.S., it's hard to do better than Ply Gem (PGEM) in terms of sheer end-market leverage. Distributor Builders First Source (BLDR) has more overall leverage to new housing construction, but at nearly 50% of sales, Ply Gem is well ahead of companies like Masco (MAS) and Fortune Brands (FBHS), and is roughly on par with Louisiana-Pacific (LPX).
It
takes more than just good end-market exposure to be a long-term winner,
though, and Ply Gem certainly has work to do in improving margins and
cleaning up its balance sheet. Although I think management has a solid
plan for improving margins and I like the growth prospects, it feels
like you have to stretch to really make the numbers work on the fair
value side of things (and it seems like many sell-siders have done
exactly that). Though I do believe Ply Gem will be a good stock proxy
for new home construction (and investor sentiment about it), I'd be wary
of a slower, more drawn-out recovery.
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Ply Gem Highly Leveraged To New Housing
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