USG Corp (USG)

1Nf1DeL (27.45) Submitted: 6/29/07 10:55 AM : Start Price: $47.44 USG Score: -42.69

It will take some time for this one to develop. The longer it lies flat whilst it increases its earnings at a superior rate to many other companies, the more it has the potential to shoot up once its value becomes acknowledged.

The chapter 11 story has been skillfully handled by the management and the company is currently positioning itself for the next cyclical upswing.

With all that negative sentiment in the market about housing related securities, this one is in the bargain bin at only marginally more 7x earnings. Note the superior returns USG is able to generate from a very simple and efficient business.

The asbestos litigation ravaged the competitors similar to the black death in medieval Europe. A great deal of USGs competitors have vanished, leaving it to dominate the industry with 40% penetration.

The price to book value ratio is a bit high, but considering the low PE this one would still make it onto Ben Grahams recommended list if you apply his maxim of multiplying the PE to the PBV ratios.

A quasi monopoly, severely discounted price, consistent track record of superior returns, market dominance, competent management, what is not to like here? It won't move for a while, that's why. People believe they can still make (or lose) some easy money on different pastures.

Once the price shoots past them they will live to regret that little folly ;)

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