Building Material Winners and Losers: Owens Corning

Shares of building materials makers surged Wednesday after an industrial production report led some economists to say that the end of the downturn may be in sight, while other analysts remained cautious.

The Federal Reserve said industrial production fell last month, but economists responded that, for a variety of reasons, the decline may moderate soon as businesses bring inventories in line with slower sales.

"Recent reports on retail sales, housing activity and auto sales offer hope that the economy and the industrial sector is forming a bottom and the worst of this recession occurred in the first quarter," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

"We expect the pace of the industrial decline to be much slower going forward and anticipate a return to modest growth early this fall."

The return to modest growth will depend on unemployment and foreclosures, cautioned Frost & Sullivan analyst Konkana Khaund.

"It is premature to project any positive upward trend right away," the analyst said of recent signs of a slowing contraction.

"The strength of (today's building materials') rally is ultimately tied to the recovery process, as we continue to battle through 2009. A lot depends on the state of employment generation within these sectors and the trend in foreclosures witnessed through the remainder of 2009."

Khaund also said gains in building company stocks reflect a "a temporary crossover impact" from building companies.

"Pulte Homes' (PHA Quote) recent acquisition of Centex has injected some fresh interest into the overall building sector and materials ride on this sentiment," Khaund said.

In afternoon trading, Owens Corning (OC Quote) advanced $2.05, or 18.5%, to $13.17 and Masco (MAS Quote) climbed 57 cents, or 7.7%, to $7.92. USG (USG Quote) rose 61 cents, or 6.2%, to $10.44.