Monday, August 09, 2010

Strong Economic Foundation for Growth?

Cement Creates Strong Foundations For Growth

You think the USA or Europe construction industries have strong enough foundations to put your money on right now? I don't after another increase in USA unemployment last Friday and more important the future of potential increases of jobs and GDP. This week I’ve got a short sell on CRH Plc. It’s a big ADR based in Ireland involved in cement and construction products that sells half of its products in the USA. The stock has already been in a downtrend, and I’m betting it will continue further down for the time being to provide a low-risk high-reward profit here.

For the time being we’ve got some strength in the Dow Jones Industrials, with the S&P500 trying to follow. I don’t think it will last long until prices are headed lower again. Same for the Nasdaq.

Last Fridays Jobs Report

Last Friday traders were watching the S&P trade action like a Hawk that traded below its 200-day moving average of about 1,115. The price move lower seemed to be mostly due by the Friday’s jobs report that showed another 100,000 plus jobs lost. Buying the dip that has happened recently looks to me as a high risk low-reward idea right now. Maybe the buy the dip idea would work if the financial stocks led the way, but most of the big boy investment banks failed to rise above their 200 day moving average on Friday. Technically, the market looks down, fundamentally it could be up, but it doesn’t look like that to me currently.

Goldman Sachs, Congress, and More Fiscal Stimulus?

There is some strength in the market, but it looks to me shallow at best and the way to play this week and next is to get ready for short sell trade setups in the stocks. After Friday’s job report, Goldman Sachs was out talking about decreasing their expectations for USA economic growth. To get GDP increase you need employment increases and then what is Congress going to do or most likely not do to get the economy growing stronger with more jobs growth? Is corporate USA or small business going to add jobs? I don’t think so just yet. Congress has so many issues to deal with right now, you think they’re going to get something going like with more economic stimulus or wait until the Congressional elections are over? USA business is most likely to keep its balance sheet tight for the time being by not hiring new people just yet. Even if Congress did approve another fiscal stimulus, it may not work, like the last stimulus didn’t work too well it seems.

My Stock Pick This Week

Is CRH from Ireland. It’s an ADR on the NYSE valued at about $15 billion. They’re involved in Cement and construction products. I would be a buyer of this type of company in Asia, but in the USA and Europe markets right now, I don’t think so. USA and Europe have to downsize still while Asia as a whole is playing upsize catch up as they have been this decade with their stable and positive economic growth rates which I attribute to some help of “smart money” around the world being invested there.

CRH gets about half of their profit from their operations in the USA. They recently said that earnings are slowing. Do you see a pickup in USA construction this year? I don’t. CRH said are things got harder for them the first six months of 2010 as Europe sovereign debt defaults still linger and with the USA economy getting softer and softer. No matter the good or the bad CRH says, the bottom line for me, the forward fundamentals show no significant growth yet, and the chart tells me the story for now, so I’m selling it.

Sell Short CRH – Ticker CRH

Sell Entry: 22.14 to 23.23. Watch for some uptick this week to sell it.

Stop-Loss: 24.28 or 8% from your entry point.

Take Profit Targets: 19.30 to 18.93, 17.48 to 17.16, 15.28 to 14.95, 11.58 to 11.36

CRH Company Profile

CRH public limited company, through its subsidiaries, engages in the manufacture and supply of building materials worldwide. It provides cement, aggregates, readymixed concrete, asphalt/bitumen, and agricultural and chemical lime materials; architectural and structural concrete products; clay products, such as clay facing bricks, pavers, blocks, and roof tiles; and building products, including construction accessories, building envelope products, and insulation products, as well as offers transportation, construction, and paving services. The company also produces concrete masonry and hardscape products, packaged lawn and garden products, and prepackaged cement mixes; precast, prestressed, and polymer concrete products, as well as plastic box enclosures; manufactures and installs modular precast structures for use in structures, such as hotels, apartments, dormitories, and prisons; and concrete pipes for use in storm and sanitary sewer applications. In addition, it provides architectural glass products comprising insulated, spandrel, laminated, security, and sound control glass products; engineered aluminum glazing systems products consisting of storefront and entrances, curtain wall, skylights, and architectural windows; and welded wire reinforcement and fencing products. Further, the company markets and sells supplies to the construction sector and to the general public through professional builders’ merchants stores and Do-It-Yourself (DIY) stores. As of December 31, 2009, it operated 663 builders’ merchants stores and 241 DIY stores. The company was founded in 1949 and is headquartered in Dublin, Ireland.

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Click the CRH stock chart below for a larger view.

CRH Stock Chart