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Strong Housing could Benefit Wallboard Makers

David Becker
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A strong recovery in the housing space could have a positive effect on gypsum maker USG (NYSE:USG) , as builder look to purchase wallboard to build homes. USG Corp through its subsidiaries, engages in the manufacture and distribution of building materials worldwide.

The stock price surged last week after Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) disclosed that on December 9, its units acquired a total of 21.4M shares of USG upon conversion of the called notes. As previously reported on February 11, 2009, the subject notes were purchased in February 2009 in a private placement by USG of $400M aggregate principal amount of notes. Warren Buffett’s Berkshire now owns a 30.5% stake in USG.

The 52-week range of USG is $ 21.35 – $30.97, and the stock hit a 52-week high in mid-October. Sales were up 12% quarter over quarter and the three-year growth rate of sales was up 6%. The company has a profit margin is less than zero.

Recent insider buying makes the stock look attractive. Warren Buffet a director of the company purchased nearly 21.4 million shares of the company stock for a total value of 244 million dollars.

The technical outlook is strong as the stock heads for resistance which would be a 52-week high. Momentum is very strong as the MACD (moving average convergence divergence) index prints at hits its highest level in the past 12-months. The spread (the 12-day moving average minus the 26-day moving average) has diverged away from the 9-day moving average of the spread. The RSI (relative strength index) is printing near 69, right below the overbought trigger level. The acceleration in the RSI points to higher prices in the future.

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