Zacks Industry Rank Analysis Highlights: Masco and Vulcan Materials

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Jun 02, 2011, 09:30 ET

CHICAGO, June 2, 2011 /PRNewswire/ -- Stocks featured in this week's Zacks Industry Rank analysis include Masco (NYSE: MAS) and Vulcan Materials (NYSE: VMC).

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Zacks Industry Rank Analysis is written by Dirk Van Dijk, CFA, Chief Equity Strategist, Zacks.com.

Buildings Stay Demolished

There are four building and related "industries" among the worst 30 of the 256 Zacks industries. Two are medium sized (by number of firms) with seven firms each. Two are distinctly larger than average. The Cement and aggregates industry has seven firms in it, and is faring the worst, in 246th place -- three spots worse than last week, and an average score of 3.57, unchanged on the week.

Right behind it is the wood products industry, also with seven members, in 234th place. That is actually an improvement of nine spots, as the average rank fell to 3.43 from 3.57. The Miscellaneous Building products group is the largest of the four with 20 members. It also suffered the biggest decline, falling 21 spots to land in 229th place, as its average rank rose to 3.40 from 3.25.

Finally there are the Homebuilders, who are sort of the prime movers of the overall group. There are 16 firms in the industry (well, publically traded and followed by the Zacks Rank; there are still lots of Mom and Pop homebuilding firms, but they have been hurt even more than the big guys in the downturn). The Homebuilding industry is in 226th place, an improvement of two spots from last week with an unchanged average rank of 3.38.

The first table shows the Building stocks that hold the dreaded Zacks #5 Rank (Strong Sell). The second table shows the number 4 ranked (Sell) firms. If the Zacks Ranks were random, one would expect that only 5% of the firms in an industry would be "#5s" and 15% would be "#4s." That is not the case with the Building and related firms.

42% of Firms at Zacks #5 or #4 Rank

There are a total of 50 firms in the four industries. Eight of them (16.0%) have #5 ranks, and 13 (26.0%) have #4 ranks. For the most part we are talking about small-cap firms here, although there are a few good sized mid-caps such as Masco (NYSE: MAS) and Vulcan Materials (NYSE: VMC) that make it onto the "#4" list. Those should be shortable, or have options available to play their weakness that way. The others are probably just best avoided for now.

If you use earnings as your primary value metric, these firms do not look particularly compelling, with the exception of a few micro-caps. Ten of the 21 firms on the lists are expected to lose money this year, and seven are still expected to be in the red in 2012. Those that are expected to be in the black are seeing steep declines in there expected earnings, so they too might just end up seeing red ink next year as well.

The U.S. is not going to continue selling just 300,000 new homes a month forever. Over the course of the next five years, it is not delusional to think that we could see more than a doubling of new home selling pace. That would still be a very anemic level by historical standards, and the population grows by about 1% per year.

Presumably, more people will mean more need for places to live. The turnaround is not here yet, and in investing, there is often very little difference between being early and being wrong. Keep your powder dry for a better chance at this industry later this year or in early 2012.

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Contact: Dirk Van Dijk, CFA
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