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USG Stock Is Rising on Strong Outlook

Is your portfolio well-positioned to take advantage of the growing demand for building materials? If not, USG stock is a good place to start.

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USG Corp. (USG) and the U.S. Chamber of Commerce released their quarterly Commercial Construction Index results on December 11, and it was good news for USG stock.

The Commercial Construction Index reports data from a surveyed contractor panel of more than 2,700 commercial construction decision-makers. As reported, “optimism remains high in the commercial construction industry, with 57% of contractors expecting to hire in the next six months and a large majority reporting stable or increased revenue expectations in the next year.”

The index gauges confidence by assessing backlog levels, new business opportunities and revenue forecasts within the commercial construction industry. 99% of respondents reported high or moderate confidence in the demand for commercial construction, with a third expecting demand to remain strong for the next 24 months. The percentage of respondents who expect to see their business revenues increase in the next year has risen from 40% in the second quarter of 2017 to 47% in the current fourth quarter.

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Is your portfolio well-positioned to take advantage of the growing demand for building materials? My Cabot Undervalued Stocks Advisor portfolios hold over a half dozen stocks representing the lumber, steel, engineering and construction aggregate industries. It’s time to bring another homebuilder stock into the fold!

USG stock got off to a slow start this year, but has been on a tear since bottoming in late August.

USG Stock Combines Growth, Value

USG Corp. (USG) is North America’s largest maker of gypsum wallboard and the second-largest maker of ceiling grid and tile for use in new and remodel home and commercial construction, and industrial processes. USG serves the U.S., Canada, Mexico and Latin America. The company had a 2016 gypsum wallboard market share of 25% in the U.S., 42% in Canada and 50% in Mexico. In addition, USG and Australia’s Boral Limited entered into a building products joint venture in 2014 that serves Asia, Australia and the Middle East. The company is based in Chicago.

Revenue growth is on a slow uptrend from $2.9 billion in 2014 to $3.1 billion in 2017. Revenue is expected to rise another 3% to 7% in 2018, supported by the growing economy, and post-natural disaster rebuilding efforts in the U.S. and Mexico. Both the commercial market and residential housing businesses are growing at USG, with commercial building experiencing faster growth.

A consensus of 22 Wall Street analysts projects USG’s earnings per share (EPS)—a key profitability measure—to rise from $1.67 in 2016 to $2.10 in 2017 and $2.46 in 2018. That represents earnings growth rates of 25.7% and 17.1% in 2017 and 2018. Those are substantial increases!

I prefer a stock’s price/earnings ratios (P/E) to be lower that its earnings growth rate, which indicates to me that it’s an undervalued stock. In the case of USG, the 2018 P/E is 15.0, below the EPS growth rate of 17.1%. What’s more, according to a CFRA (formerly Standard & Poor’s Research) assessment, USG has a far-lower price/earnings ratio (P/E) than the 10 other building products companies in its industry peer group. This stock presents great value vs. its peers!

USG’s long-term debt-to-capitalization ratio has been falling dramatically in recent years, now down to about 36%, which I consider to be a very fair number.

USG is a mid-cap stock with a $5.2 billion market capitalization.

USG stock made a significant move this month, finally breaking past long-term price resistance at 36 that was established in the first quarter of 2014. That means USG now has enough strength for a new run-up to prices that the stock has not seen in many years. Now that the waiting is over and the price chart is extremely bullish, it’s time to buy USG stock before it travels much higher than 37. Buy USG now!

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Crista Huff is the lead analyst of Cabot Undervalued Stocks Advisor, where she combines a strict fundamental methodology with technical analysis, to identify growth and value stocks whose charts are turning bullish.