Stock Talk is a regular monthly column prepared by Spear
& Staff, Inc. especially for MODERN DATA. Investment ques-tions of gei1eral interest will be answered, as space permits, in this column.
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Dept. RAS Spear & Staff, Inc.
Babson Park, Mass. 02157
The period from early 1967 through late 1968 was one of investor exuberance for building materials stocks. Along with recovering from its depressed state of 1966, the group dis-proportionately from these problems. Housing starts in the last ten years have remained nearly constant while other areas of the economy have experienced rampant growth.
Increasing social, political, and economic forces are pressuring Government into alleviating the troubles of the industry. The need for decent shelter for a multitude of Americans, the deterioration of the cities, and the contin-ued population growth are immediate problems for which solutions are imperative. The government is taking a more favorable attitude toward financial institutions who engage in mortgage lending, however, final resolution of the hous-ing crisis will undoubtedly have to await the return to peacetime economic conditions and a relaxation of the tight credit policies prevalent today. New technologies in building will become increasingly important and should figure prominently in solving the housing dilemma in the family formations will average somewhere around 1.3
mil-lion in each of the next 10 years.
Additional demand comes from the replacement market.
Nearly 500,000 units are demolished yearly by national disasters, highway building, and urban renewal. There also exists a formidable amount of deferred demand which has been building up since mortgage rates began ap-proaching high levels in 1966. This factor is difficult to estimate but some economists feel it may equal as many as 500,000 units. A 100,000 unit market is estimated to be necessary annually to provide for the luxury of a second or vacation home for the affluent American.
In analyzing the demand factor, perhaps the most properly stimulated conditions, it is conceivable that total demand could result in housing starts above the 25 million mark over the next decade. Indeed, The President's Com-mittee on Urban Housing (the Kaiser Committee) in 1968 recommended "a goal of producing at least 26 million new and rehabilitated units by 1978, including 6-million-to-8-million federally subsidized dwellings for families in need of housing assistance." However, if historical prece-dent means anything, optimism toward this goal's realiza-tion must remain guarded. The Housing Act of 1949 authorized the construction of 810,000 public housing units in 6 years but in reality the funds appropriated by
These rising costs for conventional housing are causing many firms to experiment with factory-built homes. In the 1950 to 1967 period, total construction costs rose 65%
while hourly construction union wages advanced 113%.
While factory-built housing would seem to provide a solu-tion to the labor cost problem, the industry will have to
"gear up" for mass production which may take more than a year.
Several new technologies in building materials are now being experimented with which will assuredly change the face of the industry in the next decade. Aluminum, steel, plastic, and concrete are some of the promising materials
MODERN DATA/March 1970
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for factory or systems building. One company, Universal Papertech, is selling a very low-cost house made out of specially treated paper-like material.
Federal Home loan Bank loans to the S & l's, the Kaiser Committee recommendations, the Housing and Urban De-velopment Act of 1968, and Romney's program all lend assurance that the government is sincere about solving the housing shortage problem. Once involvement in South Vietnam abates significantly, it is very likely that the phe-nomenon of "defense conversion" will take place. That is, a rethinking of national priorities will undoubtedly occur, causing a switch in funds from the defense area to seg-ments of severe domestic plight.
In summary, a solution to the housing problem will occur
Building materials companies are still eagerly awaiting the coming housing boom. It is definitely approaching but
paid? Should these shares be held? M.K.
A) After a series of quarterly losses Brown Company million in arrears is repaid. Preferred stockholders voting as a class can upon default of six quarterly Brown's extensive holdings in Northern New England where land development is gaining momentum. Hold only if you can afford risk. com-puterized photocomposing, typesetting, and printing sys-tem. Equipment sales reached $640,114 in 1968 with a deficit of $1.2 million. Through September 30, 1969 sales were $2.1 million and the operating loss had been cut to
$287,190. However, the small - equal to $0.01 a share-profit reported in the third quarter would probably not have been earned under the company's previous account-ing policy but in the second quarter management elected cost-speed ratio of its equipment is unquestioned but under today's market conditions investors are looking for profits as well. Given a hot market Alphanumeric could once unfinished hardboard accounting for 50% of domestic out-put. While this is primarily a one-product company, the industry, especially furniture and automotive. Masonite -intent on protecting itself from further instability in the housing market - plans further penetration of the more stable area of home improvement. In fiscal 1969 earnings rose from $0.69 a share to $1.96 a share on a 24%
increase in sales which reflected growth in the remodeling and non-residential construction area, higher income from the sale of timber and new products. We expect these