GO
Loading...

Kelly: Time to Buy Construction Stocks?

One of our favorite leading economic indicators is rail-car loadings — simply put, before a product is consumed it must get to the retailer and rail is major part of that supply chain. In the first quarter, intermodal traffic experienced a large increase as inventories were replenished.

The sustainability of the economic recovery will be foreshadowed by the sustainability of intermodal traffic. The most recent data illustrate the 4 week moving average has begun to decline — not the sign of a robust V-shaped recovery. However, intermodal traffic is still far above year ago levels suggesting modest economic growth — not time for canned goods and bunkers yet!

Crushing It!

Digging deeper into rail-car loadings we find that an important subset is seeing rapid growth. Crushed stone loadings have picked up significantly over the last few weeks as suppliers prepare for the spring construction season. Crushed stone is one of the first products used in the construction process — it serves as the base for roads and adds strength to concrete.

Rising crushed stone loadings are a bullish signal for the US housing industry. Despite the popularly reported doom and gloom about housing, suppliers to the industry are quite ebullient. Additionally, we expect the Federal Reserve to keep interest rates low until at least December 2010. This timing will allow the construction industry to recover during the best weather. Moreover, with home affordability at levels not seen since 1994 we expect a robust increase in the housing industry.

Our favorite play on the emerging trend in the construction industry is Vulcan Materials. Vulcan Materials is one of the largest producers of construction aggregates including crushed stone, sand and gravel. The rising shipments of their product should directly impact their top-line.

Brian Kelly is the founder of global investment firm Kanundrum Capital.

______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com.

Trader Disclosure:
Kanundrum Capital is long VMC

Trader disclosure: On April 9, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (HES), (TER), (AXP), (YHOO), (APA),; Terranova Is Short (LCC), (XLY); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM): Finerman's Firm Is Long S&P Puts: Finerman Owns (AAPL), (USO); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC) Preferred, (BAC), (BAC) Calls; Finerman's Firm Owns (CASY); Finerman's Firm And Finerman Own (JPM); Finerman's Firm And Finerman Own (BBY); Finerman's Firm And Finerman Own (WFC) Preferred; Grasso Owns (LPX), (ASTM), (ABK), (AAPL), (BAC), (BGP), (C), (CVGI), (COST), (JPM), (NEM), (PRST), (WMT), (PFE), (BA), (T); Iuorio Owns (AAPL), (WMT), (FXA), (FXC); Iuorio Owns (SPY) Calls; Iuorio Owns (QQQQ) Calls; Iuorio Owns (USO) Puts; Iuorio Owns (GLD), (GLD) calls; Iuorio Owns (FXE) Puts; Jon Najarian Owns (PALM); Jon Najarian Owns (JPM) Preferred; Jon Najarian Owns (GOOG) Put Spreads, Owns (AAPL) Call Spreads; Kelly Owns (NBG), (FRE); Karabell Owns (FCX); Seymour Owns (AAPL), (AA), (BAC), (BP), (INTC), (MSFT)

For Tim Seymour
Seygem Asset Management Owns (POT)

For JoeTerranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLI)

For Steve Grasso
Stuart Frankel And Its Partners Own (LPX)
Stuart Frankel And Its Partners Own (CUBA)
Stuart Frankel And Its Partners Own (CVGI)
Stuart Frankel And Its Partners Own (GERN)
Stuart Frankel And Its Partners Own (HSPO)
Stuart Frankel And Its Partners Own (MERC)
Stuart Frankel And Its Partners Own (NWS.A)
Stuart Frankel And Its Partners Own (NXST)
Stuart Frankel And Its Partners Own (NYX)
Stuart Frankel And Its Partners Own (PDE)
Stuart Frankel And Its Partners Own (PFE)
Stuart Frankel And Its Partners Own (PRST)
Stuart Frankel And Its Partners Own (RDC)
Stuart Frankel And Its Partners Own (TLM)
Stuart Frankel And Its Partners Own (XRX)
Stuart Frankel And Its Partners Own (SDS)
Stuart Frankel And Its Partners Are Short (QQQQ)
Stuart Frankel And Its Partners Are Short (CL)
Stuart Frankel And Its Partners Are Short (AAPL)

For Brian Kelly
Kanundrum Capital Owns (MS)
Kanundrum Capital Owns (FRE)
Kanundrum Capital Owns (FNM)
Kanundrum Capital Owns (VMC)
Kanundrum Capital Owns (POT)
Kanundrum Capital Owns (GOOG)
Kanundrum Capital Owns (NBG)
Kanundrum Capital Is Long Dollar
Kanundrum Capital Is Long Treasuries
Kanundrum Capital Is Short Euro
Kanundrum Capital Is Short Yen
Kanundrum Capital Is Short Franc

Symbol
Price
 
Change
%Change
VMC
---