Stock Picks (aviation) Part II

[Steve]

We had a few pilots post stock picks a few months ago. Some did very well, others not so much. I thought it would be fun to do it again. Last time I picked SBUX Starbucks and also bought a few hundred shares. I am up about 65% since. My pick this time around is

USG

Warren buffett owns 20% of this company and just upped his stake in it. It has dropped to $50 after a 52 week high of $112. Pretty good financials and I think it will do as good, if not better than SBUX over the next 1-2 years.

 

[timeoff]

Who's to say it has stopped declining? $112 down to $50 is a HUGE drop and an extremely bad sign. USG has a 6.5 mil share short interest. Lots of money betting it will continue to decline in the near term. It was 6.1 mil last month (meaning more money is selling the stock without owning it). A pretty good indicator that you could pick it up in a week or two in the 40's. If you were to buy 500 shares, I would buy it one lot at a time over a 3-4 week span. You will more than likely be averaged in at a lower cost.

I am currently long GOOG 420 calls (google). The stock is up $55 since earnings last week. Ride that up to $500 (which will probably happen before the week is out) then close out the position and buy puts until it comes back down to $460 in the next month or two.

 

[Groucho]

Buffett doesn't make many bad calls. He buys when he feels that the intrinsic value is not recognized by the market. USG is propably a good choice based on current valuation and cash flow. Buying value at a deep discount means you will always be at odds with most of the mainstream, that's why its value investing.

 

[timeoff]

I agree that USG on paper looks good (ent value vs. market cap). From a pure technical trading aspect, wait to enter this trade until the 50 day and 200 day converge. The stock appears to be bouncing off it's 50 day and that is a good sign. But I would wait until the slide has stopped. Any idea why USG has sold off? Why are investors jumping ship?

http://finance.yahoo.com/q/ta?s=USG&t=1y&l=on&z=l&q=l&p=m50,m200&a=&c=

edit: Just did a little digging and USG is heavily weighted in building products. The current housing market should be telling you why this stock is falling. If the bottom falls out of the real estate market (which could happen) then USG will keep declining.

 

[Steve]

900 million is asbestos settlements with the chance of more in the future. Much of the insurance risk for these settlements is owned by Buffetts insurance companies. Maybe he knows more than we do?? USG's bond rating is Baa, which I feel is a pretty good sign.

 

[BoilerUP]

I noticed this morning that Lockheed Martin was up almost $30 in the last 52 weeks.

 

[Steve]

I got in on 100 shares of USG this morning at $49.25. Lets check back in a few months and see what how it turns out for me. Anyone else getting in?

 

[SiuDude]

900 million is asbestos settlements with the chance of more in the future. Much of the insurance risk for these settlements is owned by Buffetts insurance companies. Maybe he knows more than we do?? USG's bond rating is Baa, which I feel is a pretty good sign.

Buffet's BRK.A shares are now trading above $100,000 for the first time.

 

[Wiggums]

I would stay far away from this stock. Building products? Have you read any of the guidence from USG's customers, such as home builders? The housing bubble is over and demand for building products is going to be down for a few years.

 

[Steve]

I would stay far away from this stock. Building products? Have you read any of the guidence from USG's customers, such as home builders? The housing bubble is over and demand for building products is going to be down for a few years.

Thats residential construction which is only a part of USG's business. Much of it comes from commercial RE which is doing pretty well.