When Warren Buffett and Berkshire Hathaway take interest in a company, it’s generally wise to take a look yourself. Warren Buffett is the second richest person in the world, second only to Bill Gates. Amazingly, he has amassed almost all his wealth through stocks.
Buffett finds companies he likes, companies that have strong business fundamentals, good management, and as little competition as possible. Then when he can get these companies at a value price, he buys up as much as he can.
Well Buffett did this recently with USG Corporation. And when Warren makes a move, I like to look into the company and see if I want to make a move. We don’t jump blindly, but it’s a good place to start.
USG Corporation manufactures building materials for construction and remodeling. Their most well known brand is Sheetrock. Most likely, USG has manufactured 30% of the drywall that surrounds you right now.
Recently, USG has been plagued with asbestos suits. In April of 2006, USG traded as high as $114 per share. But asbestos suits have pounded the price down to $56 per share today (January 2007). With its final asbestos settlement payment of $3 billion in Dec of 2006, USG will no longer have to worry about asbestos liability.
Naturally, when you’re making multi-billion settlement payments, you aren’t making much money. USG lost $33 per share in 2006. This is why the stock price has gone down so much.
However, the company’s fundamentals are strong. Analysts predict that USG will trade at $70 by the end of the year.
Now my initial worry was about the industry. I’ve heard lots about a potential housing bubble, and I don’t want to risk being harmed by a weak housing market. It turns out that analysts are predicting USG’s sales to go down in residential markets. The weak housing market is taken into account in these forecasts. Fortunately, USG will continue to do well on the commercial side, like office buildings.
As with any investment, chance and risk are involved. However, at this price USG looks like the top pick of 2006 with lots of upside and relatively little risk.
Not sure how and where to buy USG? Visit my Content Producer Page and look for Avoid Broker Fees Here Are the Best Places to Buy Stock. (I’d place a direct link, but the editors are still considering how much to offer for the article)
Disclosure: The author previously did not own any stock in USG. However, following the logic in this article, the author purchased (in Jan 2007) and now owns shares of USG.