Post-Sandy rebuilding buys

by Mike Cintolo, editor Cabot Top Ten Trader

The market’s rally since its mid-November lows has proven durable enough to turn our intermediate-term indicators back into a bullish mode.  

Three of our new recommendations are all poised to see stronger demand as a result of Hurricane Sandy: building products supplier Louisiana-Pacific (LPX), home improvement retailer Lowe's Companies (LOW) and MasTec (MTZ), an off-the-radar name in the construction business.

Lowe’s had some trouble grabbing hold of the industry’s turnaround, but after tinkering with some pricing (it’s gone back to low prices across the board) and slashing its own costs, it’s beginning to benefit. 

Earnings in the latest quarter were up 11%, and more important, were well above estimates, with the company’s top brass offering encouraging words about the future. (Indeed, analysts see the bottom line jumping 21% in 2013.) 

It also isn’t hurting that Hurricane Sandy’s devastation should lead to a flood of reconstruction orders; Home Depot indicated as much a couple of weeks ago, and Lowe’s should catch a tailwind from that, too. All told, there’s nothing revolutionary here, and we don’t think this stock is going to triple. 

But with a reasonable valuation, a solid dividend (1.8% yield), a still-powerful housing market and a management team that’s finally pulling the right levers, the stock’s path of least resistance is clearly up.

A bad earnings report caused the stock to lag through mid-August. Since then, though, LOW has been acting well. It’s not a fast-moving stock, so we advise trying to buy on a dip toward the top of the earnings gap, around $34.

If you’re looking for a way to take advantage of the improving housing market, but are queasy about investing directly in homebuilders, Louisiana-Pacific may be the foundation for you. 

Louisiana-Pacific produces board, siding, wood products and  insulation used in new home and manufactured housing construction and for repair and remodeling, so you can see why the budding recovery in the housing market has been a boon for Louisiana-Pacific.

The ongoing Hurricane Sandy recovery efforts should remain a driver for Louisiana-Pacific, as rebuilding and reroofing remain top priorities for many in the Northeast.

The stock was a bit over-extended last month and has since pulled back to support at the $16 level and their rising 25-day moving average.

From a long-term perspective, LPX has still soared more than 170% since setting a bottom in October 2011, with the stock largely ignoring the past year’s economic woes. LPX’s recent dip should be seen as a potential buying point amid a longer-term uptrend.

MasTec is a mid-sized infrastructure construction company that engineers and builds energy, communication and utility projects in North America. The company has been around since 1929, and has a great history of steady growth.

Its two most-recent earnings reports (early August and November) were very strong and beat analysts’ expectations handily. Meanwhile, SuperStorm Sandy has created a huge opening for companies like MasTec that specialize in building (and rebuilding) all forms of infrastructure.

The combination of a couple of surprisingly strong quarters and the promise that Sandy will present additional opportunities makes MasTec a tempting opportunity. We think you can buy some here with a stop near $21.5; a push above $25 would be bulish.

Learn more about this financial newsletter at Mike Cintolo's Cabot Top Ten Trader.

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