As I was scanning James Cullen's site I came across an analysis of USG Corp. (USG) that intrigued me. Now that being said, in an interview I gave with him, I said that I thought housing was the next big value find. I also said that currently the situation was "too opaque" and that there would most likely be some builders going under. Trying to figure out who that may be is next to impossible, as the variables (land owned, where it is, local housing markets, carried value of land on books etc) are so subjective. Getting a true handle on a builder is just guesswork.
So, that being said, if we do think home building is the next value area, rather than try to pick a builder, why not pick the manufacturer of a product they all need? It really does not matter who is left standing among the builders when all this is over. No matter who it is, they will be buying wall board from USG. That makes USG a very interesting proposition. It also does not hurt that Warren Buffett's Berkshire Hathaway (BRK.A) owns 17% of the stock.
James did a follow-up post after the recent earnings call and the outlook for 2008 is not really rosy. But, this is a management team that has never thrown out rosy scenarios to investors in an attempt to prop up a stock price. It would seem that I am not the only one who thinks this way as the stock has jumped from $31.05 to $38 (22%) and change since Jan. 7th.
What to do? Well, sit and wait for now. I can't buy anything after a 2 week 20% plus run. Now, if the stock were to give 1/2 that back, I would then become interested. Should it plop more back on the table, I would be inclined to be a buyer. Will it do so? I am inclined to say yes. Housing will be a drag for a while and eventually many recent buyers will give up and move on to something else. When they do, the price ought to fall.
Disclosure: No position.