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It seems like this housing collapse isn’t getting any better. Just a few hours ago D.R. Horton (NYSE:DHI) announced that orders were down again, this time off 37%.

The downturn in the homebuilding industry has been an extremely huge blow to every company in the sector due to its extremely cyclical nature. With the recent sub-prime mortgage blowup, underwriters have been more reluctant to take on bad loans which has only exacerbated the short terms problems of these homebuilding companies as there would be less demand for homes.

Within the homebuilding sector I think there is one company worth looking at. While they aren’t actually a homebuilder their industry is somewhat tied to the real estate market. That company is Owens Corning (NYSE:OC), the wallboard company, which has recently come out of bankruptcy due to asbestos lawsuits. This is one of the rare times where a healthy company declares bankruptcy. Owens Corning was not alone as the number one player in the industry, US Gypsum (commonly referred to as USG), had declared bankruptcy protection as well. It’s interesting to note that Berkshire Hathaway owns a large chunk of USG.

Owens Corning also has a great management team and that is an extremely valuable intangible asset. From almost any way you value Owens Corning whether it be using Net Present Value Analysis, Private Market Analysis, or even taking Liquidation Value + Earnings Power conservatively gives you prices much higher than the current price of $32.99 today.

I think this company is an excellent out of bankruptcy situation and could even be a takeover target. This is not a buy recommendation and I do own shares. For someone who wants to have a long term leveraged play on the common stock one could consider buying the Owens Corning Warrants that expire in 7 years at a strike of around $45. The ticker for that OCWAZ.

Disclosure: Author is long OC

OC 6-mo chart

OC 6-mo chart