Mr. Johnson: My focus is on the manufacturing side. I cover building product manufacturers that range from a company like Owens Corning, fiberglass roofing insulation, to companies like Vulcan Materials, which produces aggregates, cement and concrete. I also have some coverage in the wire and cable space, which has a tie-in into the construction trends, but also has some industrial applications. The residential construction and repair/remodel companies I cover include Owens Corning, which is "OC," Simpson Manufacturing, Trex Company, Universal Forest Products and American Wookmark. The basic materials companies include Eagle Materials, Martin Marietta, Texas Industries, Vulcan Materials. In the wire and cable space, companies covered are General Cable, Belden, Encore Wire, which is 100% building wires, so they're directly tied into construction trends, and then a small company called Coleman Cable.
TWST: Obviously the sector has been hurt by the economic downturn over the last couple of years. Are the companies now doing better? How does the sector look?
Mr. Johnson: From some of the very low levels of activity that we have experienced over the last couple of years to where we are today, you're probably incrementally better. With that being said, these companies are coming off a very low base of construction activity, particularly in the residential construction space, where we reached levels of activity that had not been experienced in the last 30 or 40 years. So when you talk about seeing trends getting better, the next statement that comes after that from companies in these markets is that we are coming off an extremely low base of activity and the rate of improvement is at a low level. We're seeing housing starts and permits in the 550,000 to 600,000 range in May on an annualized basis. That's a little bit above prior year levels, which were in the 500,000 to 550,000 range broadly speaking. Also residential construction markets are adjusting to an environment without stimulus (tax credits), which is affecting trends this summer. Utilization rates are better in some respects than they were a year ago, but you're coming off a very low base, so you need more demand - starts in a 700,000 to 900,000 range - to see those utilization rates move up and get the operating leverage in these facilities to start showing up.
Tickers included in this excerpt: AMWD, BDC, BGC, CCIX, EXP, MLM, OC, SSD, TREX, TXI, UFPI, VMC, WIRE
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