Seeking Alpha: Insteel Biding Its Time

Investors continue to wait for a recovery in non-residential construction spending that has, in some ways at least, already taken place. Data from the St. Louis Fed shows a 13% yoy increase in total private non-residential construction spending in April, while spending on highways and roads is near an all-time high. While I wouldn't argue against the idea that the U.S. is still likely to see further growth in new private construction and needs to see growth in infrastructure projects like bridges and roads, I am starting to think that this is setting up as more of a "low and slow" process rather than a dramatic rebound to pre-recession levels of activity.

All of that brings me to Insteel Industries (NASDAQ:IIIN), a leading player in prestressed concrete strand and welded wire reinforcement products sold to concrete product manufacturers for use in a range of non-residential and infrastructure building projects. Insteel is a double-barreled play on growing construction activity, as higher shipments and pricing are clearly good for revenue, but also feed through to greater facility utilization and operating leverage. Above and beyond those drivers, management still believes that its engineered structural mesh is an underutilized reinforcement option that can be used in place of hot-rolled rebar and save money in the process.

I thought the shares were more or less fairly valued almost a year ago and that investors would do better in names like Cemex (NYSE:CX), Steel Dynamics (NASDAQ:STLD), Nucor (NYSE:NUE), and Gerdau (NYSE:GGB). While I was right about Insteel being positioned for lackluster performance (basically flat since then) and Steel Dynamics being undervalued (up more than 20% since), I was badly wrong about the prospects of Cemex (down 30%), Gerdau (down 55%), and Nucor (down 3). As things sit today, I think Insteel is somewhat undervalued, but I believe you need a pretty bullish outlook on non-residential construction activity to really see appealing value here.

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Insteel Biding Its Time