Getting a second opportunity at a great set-up is rare in the stock market, but U.S. Concrete (USCR) may be offering just such a second chance.
On September 3rd, I lamented missing an opportunity to buy USCR when it neatly tested support at the top of its last trading range. The headline reason for the surge that confirmed support was a strong revision in the Q2 U.S. GDP report that showed much larger growth for non-residential fixed investment. In my related post, I scrutinized the GDP driver relative to U.S. Concrete and was left unconvinced. The stock market seems to agree as it completed a reversal of the post-GDP surge.
I checked USCR’s behavior against the other infrastructure stocks pegged for post-GDP rallying: Vulcan Materials (VMC), Martin Marietta Materials (MLM), Summit Materials Inc (SUM), and Eagle Materials (EXP). VMC and MLM completed their own reversals on Wednesday and seemingly confirmed that GDP effect was misunderstood by traders. Yet, SUM and EXP are still holding on to the majority of their gains. EXP looks particularly interesting because the post-GDP rally led to a breakout above resistance at its 200-day moving average (DMA). That breakout was quickly confirmed.
Source: FreeStockCharts.com
EXP has a very diversified market as it serves segments across cement, concrete and aggregates, gypsum wallboard, recycled paperboard, and oil and gas proppants. So the reason for EXP’s resilience may go beyond infrastructure; the persisting rally may even have roots in expectations for hurricane recovery. I will be keeping a closer watch on EXP in coming weeks and into its next earnings report on or around October 24th.
USCR’s gyrations are also loosely correlated with hurricanes Harvey and Irma. USCR has small operations in both impacted areas: Houston and the U.S. Virgin Islands. I have not seen any word or press release from the company providing a damage assessment. The U.S. Virgin Islands is of particular concern given descriptions of complete destruction (from CNBC):
“Hurricane Irma, one of the most powerful Atlantic storms in a century, tore its away across the U.S. Virgin Islands as a Category 5 storm on Sept. 6, mixing together a deadly combination of winds and rising water.
Government officials and local residents alike are reporting the damage as catastrophic, and saying it will be months before the islands are able to recover.
‘The infrastructure is destroyed,…The roads are impassable, the power grid is completely gone, and there is a lot of looting and robbing…It’s just rubble in most of the areas … it almost looks like a bomb had exploded in the area…’ rebuilding the islands will start ‘from scratch.'”
With these kinds of descriptions it is hard to imagine that USCR escaped unscathed in the U.S. Virgin Islands. Still, the revenues there represent a small fraction of USCR’s overall business. So, I do not want to let this second test of support pass by me. The next milestone from here would be a test of uptrending support from the 200DMA around $69. A breach of that support would indicate to me the possibility that there is yet more to the story to explain the recent wild gyrations in the stock.
US Virgin Islands governor: Federal aid is here but we need more help from CNBC.
Be careful out there!
Full disclosure: no positions
Hi DD, good luck on the concrete.
I think it is hard to be short stocks or risk here with the hurricane stuff. It is all pretty positive for growth and an easy fed.
Unfortunately, I got in too early on long CAD and got stopped out a day before the snapback, which is very frustrating. Simillar happened to me with gold a month or 2 ago. Must not be so quick on the countertrend moves.
The futures pricing for UK short rates has 67% chance of BOE rate hike by year end which to me seems crazily high. on this basis alone, I am tempted to short GBP.USD.
The other interesting one out there are the NZD pairs currently. With the NZ election due at the end of next week, the NZD has been sold down. Unless there is a hung parliament, NZD may well do better in the next 2 months and I’m looking at short AUD.NZD or straight long NZD.USD
Any thoughts on Bitcoin DD ? I am very tempted to trade it, but really don’t know enough about it. I notice there are CFD’s available for Bitcoin, Bitcoin cash and etherium in USD, EUR and GBP so it does appear to be quite shortable. Sounds like there is an effort to release a Bitcoin ETF so perhaps this could juice up the price a bit more. Ultimately, it could be a tasty ride from 5,000 or 10,000 to zero. I am thinking this could be better to watch and short than Tesla. I think when risk does rear it’s head again the true junk will fall much further and faster than SPX futures and I will be looking at using them as the vehicle with small allocation, then move to SPX futs when it is clearer that the move is going to be more sustained. Of course there are always the stalwards in any risk puke up like aud.usd, the commodity currencies and resources stocks and I would probably get some of that too. But to mix it up a bit, I thought I would start looking at the price action of true junk, so I can be somewhat familliar with it when the time comes to short. Bitcoin and TSLA look like the best candidates to date. If you have any other suggestions for true junk that could fall in the early phases of a bear market, please share the idea !
Also DD, one I would like your thoughts on, I am thinking of buying. It is not a trade though but much more compelling on a valuation basis than the concrete:
FF group (Folli Follie)
This is a company on: PE of 6.5x, EBITDA margins of +20%, Large owner stake, Growing at +10%
Recent Euro strength appears to have sapped net profit for the last quarter and resulted in a short term puke-up. Basically, there is a translational Forex issue, with revenue in Yuan and Yen and conversion to net profit in Euro.
It does have a good China growth angle. Actually, I like all the China soft commodity angle stuff, as that has much, much further to run in the long term. Whatever happens in CHina, short of genocide or war on a mass scale, the Chinese will be eating more meat, grains, pate. It does look very attractive, as much as DBA. Although in a China crisis, it could go down a bit, the long term does appear to be positive. A bit of a sleeper, I might buy some and leave it under drawer and come back in 10 years.
My mistake, I thought it was a pate maker but actually it is a diversified luxury retailer! Anyway, it may still be of interest at the current valuation, particularly after last week’s puke up.I wish I could find an Ag company or company with exposure to Chinese food demand with this type of valuation.
I think the Bank of England will find it very hard to hike rates beyond at least rolling back its emergency cut. Carney is a smart cookie. He knows that all his yapping has been enough to move markets where he wants it. Notice how little the BoE has actually DONE since he has taken office.
I am staying very clear of Bitcoin and digital currencies. I will let my children have that one. I think the blockchain concept is a good one and has many potential applications. However, as long as anyone can create a new cryptocurrency, they are little different than fiat money.
TSLA is a good short as a HEDGE. So many fans and sponsors of that stock hard to want to short it as long as the general market is in a good mood.
I should have added – natural disasters are horrible for growth. The recovery process saps resources that would have otherwise gone into other, more productive activities. It also adds cost and debt burdens. Some individual companies and individual people stand to profit, but as an economic growth engine, destruction is horrible as well as tragic. For example, look up the broken window fallacy.
Sorry, I don’t know the company and don’t see it on the U.S. exchange.
It is listed on the Athens stock exchange. I can’t get access to Greek exchange via interactive brokers, my usual broker so will have to set up a Saxo account to buy it. Which is a hassle. Axia broker report before recent financials and FCF problem.
http://www.axiavg.com/images/pdf/FFG_Initiation_28082017.pdf
You must REALLY want to trade that! 🙂 Good luck.