MENU

Why this “bear market” stock could come charging back in the next 6 months

The share price of Boral Limited (ASX: BLD) is clawing back from recent losses and I believe this is one stock that’s primed to rally over the next six months.

The building materials group announced today that it’s sold its US Block business for US$156 million ($216 million) to shore up its cash balance as it decides on the buyout of its USG Boral joint venture.

The stock has collapsed into a “bear market” with Boral crashing 22% from its peak in February when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is down 4%. A drop of 20% or more is technically a bear market.

There are a few factors for the sell-off but it’s the weak US housing starts data for the months of June and July that have been the latest drag on the stock.

However, housing starts are bouncing back with August recording a 9.2% jump from the previous month and beating expectations for a 5.8% increase, according to TradingEconomics.

Start-Stop-Start: US housing starts starting to recover

The average is still below the longer-term trend but the massive rebuild from Hurricane Michael in the Florida Panhandle and Hurricane Florence in North Carolina will likely see an increase in demand for Boral’s products.

The sale of US Block is not material to Boral but it gives management greater flexibility as it weighs up its options on USG Boral following the merger between Knauf and USG. The ASX-listed partner has the right to take full ownership of the business or form a JV with the newly merged entity.

Boral provides investors exposure to two potential tailwinds – a strong US dollar and robust US economic activity.

While the US currency is giving up some ground in recent days, I am expecting the greenback to be well supported against the Australian dollar. Although I am mindful that a blowout in US government debt may trigger a sharp retracement in the greenback –  I suspect that will be a late 2019 issue.

This means the next six months should provide a clear run for stocks like Boral. Others that are well placed to benefit from the two tailwinds include fellow building materials supplier James Hardie Industries plc (ASX: JHX), and plumbing products company Reliance Worldwide Corporation Ltd (ASX: RWC).

Another that may see some benefit from the thematic is bathroom fittings and products group Reece Ltd (ASX: REH).

But these aren’t the only stocks that are well placed to benefit from tailwinds. The experts at the Motley Fool have picked three of their favourite blue-chip stocks for FY19 and you can find out what they are by following the free link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Boral Limited and Reliance Worldwide Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.