Downgrades Point to Weak Construction Spending Ahead

NEW YORK (TheStreet) - Six downgrades to sell in the construction sector and five downgrades to sell in the industrial products sector question the sustainability of construction spending in an economy struggling to stay in growth mode.

The industrial companies downgraded this week provide copper wiring and lumber, and security, safety and climate control products.

The construction companies are involved in cement, home improvements, brass and copper products used in home construction, office buildings, factories, hotels and hospitals.

When so many companies supporting construction are downgraded almost simultaneously, this has to be a warning that Fed policy is not working. Perhaps these downgrades resulted from the rise in the yield of the 30-year bond, which is an important input to the both the ValuEngine valuation model and the ValuEngine forecasting model.

The bottom line is that these downgrades suggest that construction spending should be weak in the quarters ahead.

ValuEngine shows that the industrial products sector is 18.9% overvalued and that the construction sector is 15.6% overvalued.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

General Cable ( BGC) ($32.15) will report its quarterly results on July 31 and a profit of 56 cents a share is expected. The stock set a multi-year high at $37.14 on May 31 then traded as low as $29.20 on June 24. My weekly value level is $29.92 with a monthly risky level at $36.73.

Cemex ( CX) ($11.46) will report its results July 26 and a loss of 4 cents a share is expected. The stock set a multi-year high at $12.57 on May 15 then declined to $9.13 on June 21. My weekly value level is $10.26 with a monthly risky level at $12.40.

Dover ( DOV) ($86.40) beat its earnings estimate by 7 cents on July 18 earning $1.36 a share. The stock set a multi-year high at $86.58 on Tuesday. My weekly value level is $81.04 with a monthly pivot at $85.62 and semiannual risky level at $87.43.

Ingersoll-Rand ( IR) ($61.02) beat its earnings estimate by 6 cents on July 19 earning $1.14 a share. The stock set a multi-year high at $63.35 on July 22. My monthly value level is $59.23 with a semiannual pivot at $62.60 and a semiannual risky level at $66.74.

Masco ( MAS) ($21.12) will report results on July 29 and a profit of 19 cents a share is expected. The stock set a multi-year high at $22.82 on May 20 then declined to $18.43 on June 21. My semiannual value level is $19.14 with a monthly risky level at $22.90.

Mueller Industries ( MLI) ($57.59) reported results of 90 cents a share on July 23. The stock set a multi-year high at $57.63 on Tuesday. My quarterly value level is $54.25 with a semiannual pivot at $57.41 and monthly risky level at $59.47.

MeadWestvaco ( MWV) ($36.45) will report results on July 30 and a profit of 27 cents a share is expected. The stock set a multi-year high at $38.39 on March 20 then traded as low as $33.47 on May 1. My weekly value level is $35.88 with a monthly risky level at $37.83.

Potlatch ( PCH) ($42.02) beat its earnings estimate by 16 cents premarket today earning 47 cents a share. The stock set a multi-year high at $51.48 on May 22 then traded as low as $39.43 on July 5. My semiannual value level is $41.18 with an annual risky level at $43.13.

Plum Creek Timber ( PCL) ($49.53) will report results on July 29 and a profit of 23 cents a share is expected. The stock set a multi-year high at $54.62 on May 22 then traded as low as $44.01 on June 24. My annual value level is $47.60 with a semiannual risky level at $51.16.

Texas Industries ( TXI) ($64.60) beat its earnings estimate by 29 cents on July 11 earning 54 cents a share. The stock set a multi-year high at $75.30 on May 22 then traded down to $59.50 on June 24. My annual value level is $61.58 with a monthly risky level at $77.05.

USG ( USG) ($26.24) will report its quarterly results on July 25 and a profit of 17 cents a share is expected. The stock set its multi-year high at $30.97 back on Feb. 13 then traded as low as $21.35 on June 24. My semiannual value level is $25.64 with a monthly pivot at $26.27.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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