Investing in USG

I had a grandiose idea that I was going to do a more thorough analysis starting with my next new stock investment, but that didn't work out at as planned.

Several weeks ago I began to closely follow USG when I and the rest of the world heard that Warren Buffett had significantly increased his ownership of the company. After all, Warren Buffett is one of the great investors, so when he makes an investment, people take notice.

USG is an interesting company. Earlier this year it finally emerged from bankruptcy as it finally began to shed the asbestos liability that has been dogging it for years. Just as this huge dark cloud was being lifted - the real estate bubble began to let off some steam and all companies in the housing industry began to pay the price. This certainly appears to have created some opportunities for investors.

USG is one of the largest wallboard suppliers in the US. They even own the "Sheetrock" brand name that is perhaps a more common name for the gypsum board that is the de facto interior walling material for residential and commercial structure.

Here are some additional nuggets:

Jim Cramer rates USG a triple buy; cheapest stock on NYSE
Seekingalpha suggest that the future fully diluted EPS is $7.32. Thats roughly a 15% return (to the company) on your investment at current prices.
George at FatPinchFinancials also recently concluded that USG was a fat pinch.

I decided I was ready to invest and I was pretty much down to two options - my existing Sharebuilder account (with $4 purchase fees), or a USG company-sponsored DRIP ($10 account setup fee, free optional min. $100 investments). While the company-sponsored DRIP was initially more expensive, it allows me the flexibility to make ongoing ($100 or more) investments on USG for no cost. I decided to open the DRIP with a $510 investment and would add to my position as the stock became more attractive.

I was able to fill out the application online at Computershare and purchased 10.15 shares at $49.26/share.

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Comments (7)

2 million: Do you think the current housing slow down will further affect this stock? I also heard the news about WB's interests on this stock, but didn't do any further research don't know too much about this company. Looking at the one-year chart, the current price is very attractive compared to the price of this stock in May, but exactly what happened from May to July?

Posted by Sun | November 28, 2006 11:05 AM

You'll have to dig into this more, but the short version is that the company offered each shareholders a right for one additional share at $40. This raised capital and diluted shares, effectivley doubling the number of shares outstanding. This obviously had a big effect on the stock price.

Posted by 2 million | November 28, 2006 11:42 AM

It's amazing when Warren Buffett says something, everyone listens. I bought COP solely based upon Warren Buffet owning shares of the stock.

He has a nice tracking record in picking good companies.

Posted by momeymonk | November 28, 2006 12:53 PM

Always a good thing to do some of your own digging but I have to say Warren Buffet is definitely a savvy investor and worth listening to.

Good choice with the DRIP

Posted by Matt | November 28, 2006 3:19 PM

Here is another pro article on USG corporation from Gurufocus.

http://www.gurufocus.com/news.php?id=3724

Posted by 2 million | December 1, 2006 9:15 AM

another downside to DRIPS is the inablility to time the purchases. I signed up for mine on the 29th when it was around $51 a share. I called computershare today and USG makes its purchases on the 10th of each month.

Posted by dave | December 6, 2006 10:20 AM

Ha yea I have the same problem - I invested another $100 and it hurts to watch USG go up day after day. Its definitely a long term, buy and hold investment tool.

Posted by 2 million | December 6, 2006 10:51 AM