Seeking Alpha: Axiall's Ongoing, Frustrating, Gap Between Potential And Performance

I had more or less had my fill of Axiall (NYSE:AXLL) and its missteps/disappointments back in August of 2014, but it is nevertheless still a good idea to go back and review companies you once thought might have something to offer. After all, there's at least the chance that the original thesis wasn't so much wrong as early.

When it comes to this chlor-alkali and vinyl-based building products company, not all that much has changed for good or bad. Management seems to be less inclined to move forward with an ethylene joint venture, but PVC producers have been seeing a frustratingly lack of operating leverage and the long-awaited housing recovery has been slow to arrive. I can see how these shares could be worth more than $40 on an improving outlook for chlor-alkali and building products, but the risk of getting bullish on a laggard-to-leader story is that a lot of laggards stay that way for a long time.

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Axiall's Ongoing, Frustrating, Gap Between Potential And Performance

Seeking Alpha: It's Getting Harder To Give Axiall The Benefit Of The Doubt

At some point a company's problems cease to be cyclical and start looking increasingly structural. I'm getting close to that point with Axiall (NYSE:AXLL). Six consecutive earnings misses may say more about the analysts following the stock than the quality of the company, but management's own missteps and changes in the chloralkali space have more concerned about the prospects for this company. I do still believe that the company can leverage positives like an improving U.S. construction market (whenever that arrives...) and increasing shale gas production, but I'm not convinced that the value is so compelling as to be worth the risk anymore.

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It's Getting Harder To Give Axiall The Benefit Of The Doubt

Seeking Alpha: Axiall Stuck In A Commodity Tug Of War

I have little use for beta as a measure of risk, but it is a good measure of volatility and Axiall's (AXLL) beta of over 3.0 (against a comp group of Westlake (WLK), Dow Chemical (DOW), and Olin (OLN) that ranges from 1.1 (Olin) to 2.4 (Westlake)) underscores how vulnerable these shares are to prevailing prices and sentiment for caustic soda, natural gas, ethylene, and so forth. That leads me to conclude that the market moves these shares a great deal more on the basis of what is happening right now in the chemical markets and much less on the basis of what could happen as the company reaps further synergies from the businesses it acquired from PPG (PPG) and the North American housing market continues to recover.

This makes Axiall a challenging stock. Although it has done okay since my original recommendation on July 10, the PVC industry hasn't seen the sort of demand that was expected during the summer of last year. These shares appear to be more or less fairly valued on the basis of near-term results, though I continue to believe there is double-digit upside for those willing to hold in the hopes of a housing-led improvement in the PVC market later in 2014.

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Axiall Stuck In A Commodity Tug Of War

Seeking Alpha: Ply Gem Highly Leveraged To New Housing

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

Seeking Alpha: Industry Headwinds Masking Some Progress At Axiall

The trouble with commodity businesses is that there's only so much that a company can do to control its fate. In the case of Axiall (AXLL), the company seems to be doing well with respect to its synergy targets, but the underlying PVC and caustic soda markets haven't improved as much as hoped. While this could have the effect of shifting out some of the obvious profit and cash flow leverage by a few quarters, Axiall remains an undervalued play on a recovering housing market coupled with company-specific margin improvement opportunities.

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Industry Headwinds Masking Some Progress At Axiall

Seeking Alpha: Wall Street Wants To Like Headwaters, But Should You?

I think everybody has a relative that won't ever let you get past who/what you used to be - it's probably one of those shared human experiences. I find myself slipping into that bad habit when I look at Headwaters (HW). I made some very good returns off this stock many years ago, back in the day when it was a coal treatment company with supposedly exciting catalyst technologies in the works. Management may have seen the writing on the wall with respect to the future of "clean coal," but the company's debt-fueled ventures into building products amidst the housing boom put this company into a bad spot for a number of years.

Now things are different. Headwaters is largely a residential building products company, but with some significant leverage to commercial and infrastructure construction as well. At the same time, the company has made some real strides in improving its debt situation and margin leverage. All of that aside, the sell-side has hiked its target on these shares by almost 100% over the past year (while the stock has climbed more than 40%) and it's worth wondering whether or not a large part of the housing recovery is already baked into the numbers.

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Wall Street Wants To Like Headwaters, But Should You?

Seeking Alpha: Still Time To Think About Going All-In On Axiall

Even with my dedication to the philosophy of "enlightened torpor" with respect to changing up my portfolio, there are times where it's worthwhile to consider secular trades or themes. While many stocks have already enjoyed a pretty good run on the back of improving expectations for the U.S. housing market, there are still a few ideas left that hold potential.

One of those ideas to consider is Axiall (AXLL) - the new chlor-alkali giant that has emerged from the combination of Georgia Gulf and PPG's (PPG) commodity chemical business. Investors and analysts wigged out in response to higher-than-expected ethylene prices in the first quarter, but the company's outsized exposure to U.S. housing, potential PVC margins, and synergy possibilities make this a name still worthy of consideration. As it is a commodity chemical, though, investors should realize that this is a consummate example of a stock that is bought to be sold - this is not a stock I'd imagine many investors would want to hold for a decade at a time.

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Still Time To Think About Going All-In On Axiall