Cash Machine Trading Cheap – Owens-Corning Stock Set to Run?
We think Owens-Corning (OC) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.
What Is Happening With OC
OC is down 39% so far this year and is now available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to weakening residential demand affecting product volumes and a significant Q3 non-cash impairment charge from the Doors business.
The stock may not reflect it yet, but here is what’s going well for the company. Owens Corning generated $752 million in Q3 free cash flow, up 35%, and targets $2 billion in shareholder returns by 2026. Despite a 3% Q3 revenue decline, the company is optimizing Doors synergies, building a new Alabama roofing plant, and capitalizes on a growing global insulation market. Management forecasts $12.5 billion in revenue by 2028, reflecting strategic growth.
OC Has Strong Fundamentals
- Cash Yield: Owens-Corning offers an impressive cash flow yield of 13.0%.
- Growing: Revenue growth of 21.7% over the last twelve months means that the cash pile is going to grow.
- Valuation Discount: OC stock is currently trading at 35% below its 3-month high, 51% below its 1-year high, and 51% below its 2-year high.
Below is a quick comparison of OC fundamentals with S&P medians.
| OC | S&P Median | |
|---|---|---|
| Sector | Industrials | – |
| Industry | Building Products | – |
| Free Cash Flow Yield | 13.0% | 4.2% |
| Revenue Growth LTM | 21.7% | 6.1% |
| Operating Margin LTM | 15.7% | 18.8% |
| PS Ratio | 0.7 | 3.2 |
| PE Ratio | -17.6 | 23.4 |
| Discount vs 3-Month High | -35.1% | -7.7% |
| Discount vs 1-Year High | -50.8% | -12.3% |
| Discount vs 2-Year High | -50.8% | -14.4% |
*LTM: Last Twelve Months
But What About The Risk Involved?
While OC stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. The stock plunged 85% in the Global Financial Crisis, 57% during the 2018 Correction, and 54% in the Covid sell-off. Even the relatively milder Inflation Shock caused a 30% drop. No matter how strong the setup looks, big market disruptions can still hit hard. It’s a reminder that risk is always there, even for solid names. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read OC Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
If you want to see more details, read Buy or Sell OC Stock.
Other Stocks Like OC
Not ready to act on OC? You could consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Positive revenue growth
- High free cash flow yield
- Meaningful discount to 3M, 1Y, and 2Y highs
A portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:
- Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
- Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods
Going Beyond Individual Stock Picks
Individual stocks can soar or tank, but one thing matters: staying invested. The right portfolio can help you stay invested, capture upside, and mitigate the downside associated with any individual stock.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.