Is it time to buy Caltex Australia Limited or Boral Limited?

Economic realities sometimes demand definite changes in the way a company operates if it is going to continue growing. Good companies implement change and make tough decisions to expand or cut off parts of their business to do so.

Caltex Australia Limited (ASX: CTX) is an oil refiner and fuel supplier as well as a convenience retailer. It’s a well-known brand for petrol stations around the country. It has a refinery in Lytton, QLD, as well as another one in Kurnell, NSW, which will be closed by the end of 2014 for conversion to an import terminal.

As British Petroleum (LSE: BP) is planning to close its Bulwer refinery in Brisbane, the company is adjusting its refining business in the face of increased competition from new refineries in Asia. Oil refining as a business can have quite volatile earnings.

By optimising its Lytton refinery operations and importing more fuel, Caltex could have more stable earnings and concentrate on higher profit margin segments of the business.

In December last year, the stock made a low of about $17 and since then has rebounded to $22.55. Its PE is 19 and the dividend yield is 2.4%.

Building materials producer Boral Limited (ASX: BLD) has set a new 52-week high recently on the back of a rising housing construction market and business expansion overseas. Some housing companies are seeing record levels of pre-sales commitments for new homes, so there still is a full pipeline of business to be completed.

It set up a joint venture with USG Corporation (NYSE: USG), the largest plasterboard producer in the US, which will give it more access to overseas markets in Asia, the Middle East and the US. Currently about 78% of its revenue comes from Australia.

This development will give it exposure to international housing markets that are improving after the GFC. Likewise, it will diversify its business so it won’t be as cyclically tied to the Australian housing market as in the past.

Foolish takeaway

I believe both companies are offering good investing opportunities, yet I prefer Boral because of the domestic and Asian region construction expansion

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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